It was geopolitical news that may have shocked hardened observers. In a bid to avoid escalating a heated trade war, the Trump administration agreed to wait on raising China tariffs. Almost surely, this will have a positive impact on the markets, but will this newfound solution last?
Over the weekend at the G-20 summit, President Trump and Chinese President Xi Jinping met for high-level discussions. Both parties agreed that engaging in an economic tit-for-tat is mutually disadvantageous. However, long-standing issues between the top-two economic powers can’t be resolved in a single meeting. As a result, both leaders settled on a 90-day truce.
The announcement couldn’t have come at a better time for the markets. Benchmark indices such as the Dow Jones Industrial Average baked in optimism over the past week. The bullishness drove the Dow into positive territory for the year. With the temporary halt on hiking China tariffs, equity investors may adopt a risk-off posture.
Moreover, the retail sector is breathing a sigh of relief. If the two nations failed in their negotiations, the White House had proposed raising China tariffs to 25%. Currently, they are at 10%, and will stay this away for the next three months. This temporary respite gifts retailers with extra time, which is crucial considering the lull in post-Christmas sales.
But will this action on China tariffs facilitate a permanent resolution, or is this a head-fake in the making?
Halt on Raising China Tariffs Occurring at Crucial Time
On one hand, no one can deny the importance of the Trump administration achieving a mitigation on the China tariffs. The former real-estate mogul turned President hardly represents a picture of consistency and stability. If anything, Trump prides himself in being unpredictable, which apparently is his core strength.
For him to settle, even temporarily, a dispute with a chief rival in China is a massive PR victory. Still, it’s premature to pronounce a holistic success. Prior administrations have struggled to balance accountability and cooperation with the Asian juggernaut. China routinely shortchanges the U.S. in trade deals and intellectual-property rights, yet their money is often too good to ignore.
Another wrinkle in the China tariffs is the timing. This is a tricky moment for President Trump as the Special Counsel investigation dives further into the Russian collusion controversy. Drama at home prompted Trump to axe a scheduled meeting with Russian President Vladimir Putin. To further deflect negative attention, Trump could loosen his posture against China.
Overall, though, I’m skeptical that the China tariffs debacle will fade away. This is the very moment that Trump needs to project strength. Caving into the Chinese is not part of the agenda.