A trade deal could be signed as soon as this month at the Xi Jinping-Donald Trump meeting in Florida.
Clearer signs of a growth bottom are emerging.
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Trade deal could be signed in Florida as early as this month
The US and China are moving into the last innings of the trade talks and so far signals continue to be mostly positive. A 'signing meeting' between Xi and Trump is being planned and the latest indication is that it could come at the end of this month. SCMP wrote that Beijing has accepted Trump's private resort at Mar-a-Lago as the venue. The Wall Street J ournal mentions a date around 27 March , after Xi finishes a trip to France and Italy.
Bloomberg overnight reported that a trade deal might roll back most tariffs to the levels before the trade war started . According to the article, Chinese officials have made clear that removing levies on USD200bn (of USD250bn) quickly was necessary to finalise any deal. However, China is said to have offered to reduce tariffs below the pre-trade war levels on items such as autos (currently 15% tariff) and speed up the timetable for removing foreign-ownership limitations on auto ventures.
Trump's economic adviser Larry Kudlow used a very optimistic tone last week , saying the US and China were on the verge of an 'historic' pact. US Treasury Secretary Stephen Mnuchin said on Thursday the two nations are working on a 150-page document, which would turn into a 'very detailed agreement'.
The two sides appear to have agreed on an enforcement mechanism , which is one of the key knots to untie in the negotiations. SCMP writes that the two sides have agreed to monthly meetings at the office director level, quarterly meetings at the vice-ministerial level and semi-annual gatherings at the ministerial level.
Comment. A trade deal is now more a matter of when than if. It would be very positive if most tariffs were rolled back. The alternative scenario would be keeping higher tariff rates for a period until the US had verified that China is delivering what has been agreed. However, China is clearly against this. In our view, we are likely to end up in a situation with more open trade, a more open Chinese economy and more protection of intellectual property than before the trade war started. This should be very positive for global trade. The tech war and rivalry in other areas will continue but in the short term a major cloud from the trade war looks set to be removed. Trump is set to face internal criticism that the deal is not far reaching enough but, in our view, it is hard to see how he could put more pressure on China without weakening his own hand.
Xi is giving Trump a clear win by letting him have the signing ceremony at his private resort in Florida. For what more could Trump wish? It may suggest China would not mind another four years of Trump. After all, one thing Trump has not done is to unite the Western countries against China (on the contrary, he has also been firing at allies on the trade front).
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