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More winning: Trade deal now seen as ‘likely’ between U.S., China, as markets react favorably

By Jon Dougherty

As POTUS Donald Trump prepares to fly to Hanoi, Vietnam, to attend his second summit with North Korean leader Kim Jong-un, markets in the U.S. and Asia are reacting positively after he announced his decision to postpone the imposition of massive new tariffs on $200 billion worth of Chinese goods.

Tariffs were scheduled to rise from 10 percent to 25 percent, or about 150 percent for some Chinese-made goods. But the president’s decision comes amid reports that a trade deal with Beijing is imminent.

While the markets are communicating optimism over the president’s announcement, economists and financial analysts are also clearly confident that a trade deal with China is not only increasingly likely but will be reached on amicable terms with POTUS Trump and President Xi Jinping meet next month.

Bloomberg has published a collection of analyst comments showing that most believe a deal is coming though there is some understandable concern about how long any deal would last. Some analysts said they think that all tariffs the Trump administration has placed on Chinese goods will be completely repealed.

Because both the U.S. and China are looking to “stabilize business sentiment” and quell growing worries about a prolonged slump in global economic growth, most now believe a deal is coming.

The collection of analyst reactions is courtesy of BBG:

Hua Changchun, Guotai Junan Securities Co.

The two nations will likely reach a deal on all aspects in late March and the tariffs will not rise from the current levels, but that doesn’t mean the conflict between them will be over. Tariff wars will be suspended and we’ll enter the ‘post-trade-war’ era, where the two nations will shift to championing companies, promoting advanced technologies and trying to increase control over global economic rules.

Louis Kuijs, Oxford Economics

This is a positive sign but it’s clearly not the end of difficult negotiations, let alone of the underlying tension between the two countries. Amongst other things, it will be difficult to agree on language on the “verification and enforcement” insisted on by the U.S. but disliked by China. Underlying tensions on technology, China’s industrial policies and, more generally, the rise of China, are unlikely to subside any time soon. Nonetheless, the tariff suspension and, possibly, a more lasting agreement would be a positive for international trade and business in both countries, as well as the global economy more generally.

Li Yishuang, China Securities

The extension of the tariff deadline shows that both sides have a strong will to reach an agreement. The focus is on how China is going to carry out its commitments, especially on government subsidies but there are also more granular issues. As long as both sides are willing to reach a deal,I think they eventually will overcome those obstacles and the probability of a final deal is good. A final deal will be reached after Xi and Trump meet, but on the enforcement of the deal, the two nations will still have some conflicts. This won’t be very smooth.

Derek Scissors,chief economist, China Beige Book International

The tariff delay was essentially decided in early November. That’s when the President either lost his nerve due to stock market weakness or thought he could get important Chinese help on North Korea. Since then, the only important question has been whether the U.S. has agreed internally on a credible enforcement mechanism. It doesn’t appear that we have and, until we do, the talks are worthless.

The bottom line is that most analysts believe that POTUS Trump is more likely than not to strike a deal with China, prevailing over his China hawks, and whether or not Beijing agrees to scale back its “Made in China 2025” initiative, theft of intellectual property, and agreeing to enforcement mechanisms.

But while the president may be eager to make a deal, it’s still a business deal, which means he’ll likely seek to get the best business deal he can with China, which will include some way to ensure that the Chinese are living up to their end of the bargain.

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