Substantial progress

Substantial progress. That’s the headline US and China trade representatives want us to accept as they concluded their first 2 day meeting to rebalance the trade relationship between the two biggest economies in the world. The US is cutting tariffs on Chinese goods from 145% to 30% for 90 days and China is cutting tariffs on US goods from 125% to 10% for 90 days. What can we extract from this? (1) tariffs where a tool to sit down and negotiate. (2) this is going to be the first of many meetings, but at least they are talking instead of fighting (for now). (3) this outcome is better than the expectations as you can see in the chart below. It will give the impression of progress when in reality, there is nothing substantial, positive or negative (that we know) to report. Numerically we’re basically back to square one. (4) they need to provide a date for the second round. Even better if they provide a set of scheduled meetings going forward. (5) the market is reacting positively, (2.4%-4% up on equity indices futures) but it’s likely going to demand more good news to keep momentum.

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