US markets rallied early last week with the announcement of a moratorium on new tariffs between the US and China by Presidents Trump and Xi at the recent G20 meeting in Argentina. While this is a positive step towards de-escalation, it remains unclear whether or not it precedes further resolution of the ongoing US-China trade war.
While China and the US have yet to corroborate specifications regarding the duration of the moratorium or ancillary agreements, it appears that tentative concessions are being negotiated to appease US concerns. Notably, following the summit, China released a document detailing 38 punitive measures to be applied to companies engaged in intellectual property theft. Many of these measures detail ways in which state funding may be withheld from violators, including limits to their ability to issue bonds and participate in government procurement (bloomberg).
Despite this, asymmetrical accounts of the meeting by Washington and Beijing hampered the stock market’s initial rally. Former Pentagon official Michael Pillsbury candidly exhibited this uncertainty saying that “there’s a risk the deal will come undone.” (axios). Furthermore, the arrest of Huawei CFO Meng Wanzhou last week bodes poorly for trade negotiations as both Trump and Xi will face conflicting domestic pressures to show solidarity with law enforcement and business communities respectively (NewYorkTimes). China has demanded Meng’s release as Huawei, a central pillar of technological advancement in China’s business world, maintains close relationships with government. To complicate matters further, Meng was arrested on suspicions of violating sanctions on Iran, a sensitive issue in international relations since President Trump’s withdrawal from the Joint Comprehensive Plan of Action, commonly known as the Iran Nuclear Deal. This highlights the political hazards Washington and Beijing face as they attempt to cooperate and mend their trade and business relationships.
While businesses not yet directly affected by the trade war may find temporary comfort in the moratorium, this agreement gives scant hope to those already facing perilous tariffs. That said, the fact that the US and China seem to be re-assessing trade negotiations under a tight 90-day time-table may provide an opportunity for firms to lobby their interests to greater effect. Regardless, despite the positive signaling of Trump and Xi’s meeting, the trade war continues, and until the US and China show concrete and official cooperation businesses must continue to accommodate Chinese and American trade protectionism.