Amid broad optimism surrounding the “Phase One” trade agreement between the United States (US) and China, Nikkei releases a news story saying that Beijing has doubled down on demands that may threaten to delay a preliminary trade agreement.
The news story cites not much hype concerning the 70th anniversary of the People’s Republic and the annual meeting of the Communist Party of China as signaling the dragon nation’s push to withdraw all tariffs levied since summer of last year before entering an agreement.
Key quotes
The biggest sticking point is the complete withdrawal of US tariffs. Since summer 2018, the White House slapped duties of up to 25% on about $360 billion worth of Chinese imports. Beijing has refused to budge on this issue since the tariffs have hurt the country’s supply chain.
Beijing still faces tall hurdles in its quest to eliminate all punitive tariffs. US Trade Representative Robert Lighthizer has warned of the potential of China backtracking on its pledges once the duties are lifted.
Both sides are also jockeying on where to ink the initial trade agreement. Trump wants to hold the signing ceremony in the US and suggested the electoral battleground state of Iowa. The idea is to drum up support from his base among farmers, especially as he faces impeachment hearings.
But if Chinese President Xi Jinping travels to US soil, he risks dealing with an unwanted surprise at the eleventh hour on Trump’s home turf. Such a scenario would inflict heavy damage on the political capital he built over the past several weeks.
FX implication
Despite creating almost no immediate market impact, news like this could be considered as a trigger to change the present mood that supports the likelihood of the US-China trade deal and fuels market optimism. As a result, safe-havens could witness a recovery while the Australian dollar (AUD) and the USD might have to trim some of their latest gains should traders pay more attention to the headlines.
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