On the Margin: True Fake News on China Trade

A Wall Street Journal report that the US is considering dropping tariffs on China is both true and false. The implication is that tariffs might be dropped unilaterally to facilitate a deal, or to comfort markets, but that is false.  The truth is that the US, quite naturally, would likely drop the tariffs once a deal is done (as opposed to keeping them in place as part of an enforcement regime). This distorted story nevertheless points to the increasing likelihood that a deal will get done, which markets have just begun to discount. As expected, Chinese and emerging market equities and currencies have outperformed those in the US so far.