Interim US-China trade deal offers some relief – and a false sense of security. Investors should not be lulled

The two sides have agreed to pick the low-hanging fruit to try and head off a slowdown in their own economies, but expect subsequent discussions on thornier issues, such as technology transfer and IP protection, to be far less smooth

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The consensus reached at this round of talks appears more substantial than at previous negotiations. Photo: Reuters

Published: 1:00am, 24 Oct 2019Updated: 5:20am, 24 Oct 2019

After numerous rounds of talks and a significant escalation of tariffs, the year-long trade war has finally taken a turn for the better. The agreement reached by China and the US on a tentative “phase one” deal has given the strongest hope to date that a real breakthrough in the hostile trade dispute may be attainable in the coming weeks.

Between now and mid-November, the two sides will engage in further discussions to finalise the details of an agreement to be signed by presidents Xi Jinping and Donald Trump at the upcoming summit of the Asia-Pacific Economic Cooperation forum. While no one can rule out the risk of a reversal, the chance of a genuine truce is arguably at its highest since the trade war started.

Compared to the “progress” made at previous G20 meetings, which all led to subsequent setbacks, the current “agreement” feels more substantive and consensual.

First, there is less ambiguity on the state of negotiations. Both China’s foreign affairs department and the White House confirmed almost immediately after the talks that significant progress had been made, and the two sides were working towards an interim deal. Formal statements like this – confirming the same interpretation on the state of affairs by both sides – were rare following previous trade talks.

Second, there appears to be a better separation of issues to be tackled at different phases of negotiations. The stage-one deal appears to cover mostly trade matters, namely China’s purchases of US farm goods, opening up its domestic markets, and the US holding off additional tariff hikes. These are among the most solvable issues in the bilateral disputes, and hence, it makes sense to pick the low-hanging fruit and lock in some easy gains.