Oil prices are likely to jump if Trump and Xi can hash out a deal.
The U.S. and China have started to sketch out the framework of a comprehensive trade deal, including on some of the thorniest issues that have long prevented an agreement, according to a new report from Reuters.
The progress comes at the eleventh hour of the trade negotiations. In late 2018, President Trump punted on steeper import tariffs on Chinese goods, declaring a ceasefire and setting a March 1 deadline for a trade deal. If both sides couldn’t reach an agreement, Trump vowed to move forward with tariff hikes from 10 to 25 percent on $200 billion worth of Chinese imports.
The odds were stacked against the talks. The U.S. demands didn’t just include buying some more American goods, but sweeping structural changes to the way it says China unfairly props up its own businesses. In the first few weeks of the year, there seemed to be little progress, raising the specter of a huge escalation in the trade war at a time when the global economic expansion is running on fumes.
Now, suddenly, there seems to be major progress. Sources told Reuters that “the broad outline of what could make up a deal is beginning to emerge from the talks,” even though serious disagreement remains. The outline includes memorandums of understanding on six overarching issues, Reuters says, including forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.
That is, uh, a rather ambitious list of issues to tackle. It is entirely possible that the two sides cannot reach an agreement at all. In fact, much of the progress so far has been on trade imbalances. For instance, China has offered to buy an additional $30 billion worth of American agricultural products, such as soybeans, corn and wheat. This is easy stuff compared to some of the so-called “structural” issues on the agenda, such as intellectual property rights, barriers to the Chinese market for American companies, state support for Chinese companies and currency controls. Some skeptics wonder if the gulf between the two sides can ever be bridged.
However, having come this far, another possibility is that the talks are extended and the tariff threat is taken off of the table, something that President Trump suggested he would be open to. His flexibility suggests negotiators are making significant progress. The flip side is that China may be unwilling to make deep concessions, but could be offering just enough to drag out the talks and put off new tariffs. Time will tell.