Trump and China called a truce in the trade war. Now what?

Agencia EFE
Washington, DC, USAUpdated: Dec 03, 2018, 10:53 AM IST

File photo of Donald Trump and Xi Jinping. Photograph:(AFP)

Story highlights

One thing is clear - the stakes in the negotiations between the US and China are huge.

The G-20 meeting is over, and there's good news and bad news for the Dow Jones Industrial Average and other stock market indexes, according to a Dow Jones Newswires report on Sunday.

Here's the good news following a Saturday night dinner between President Donald Trump and Chinese President Xi Jinping in Buenos Aires: The United States said it won't impose 25 per cent tariffs on Chinese goods in January, as it had planned, and China agreed to buy more US agricultural goods.

It's essentially a cease-fire, for now, in the trade war between the world's two largest economies.

The bad news is that this deal opened a 90-day window to negotiate a deal not just on trade but also on protecting intellectual property, ending the forced transfer of technology, and more.

If those negotiations aren't successful, then it's tariff time.

It's unclear how the market will react to the news, given last week's massive rally.

The S&P 500's 4.8 per cent rise - its biggest in about seven years - was, in part, a response to Federal Reserve Chairman Jerome Powell's dovish tone.

But it was also a bet on a deal being reached.

The market, however, is forward-looking, and so the question will become whether the typical sell-the-news reaction kicks in.

But one thing is clear - the stakes in the negotiations between the US and China are huge.

Paul Ashworth, chief US economist at Capital Economics, notes that if talks fail, tariffs would rise on the $200 billion of goods already on the receiving end, and would be imposed on the remaining $250 billion that are, so far, penalty-free.

"This is very much a temporary pause," he writes.

And a high-stakes one at that.