Analysts at Standard Chartered note that the US President Trump and Xi agreed at the G20 meeting to halt new tariffs temporarily to allow for talks and the two sides will immediately begin negotiations with a view to reach an agreement within the next 90 days.
Key Quotes
“In the absence of an agreement, however, the 10% tariffs will be raised to 25%.”
“We see a better chance of a partial agreement in the next few months, although a successful conclusion of negotiations is anything but assured. On the US side, the pragmatists in the Trump administration appear to have gained the upper hand for the moment, following the midterm elections that resulted in a split Congress and amid concerns about fading fiscal stimulus. More importantly, the China side seems eager to avoid an escalation of trade tensions, as evidenced by China’s agreement to purchase a “very substantial” amount of agricultural, energy, industrial and other products from the US, even before the resumption of trade talks.”
“The trade ceasefire reduces the urgency for China to introduce additional stimulus, but the government will most likely prepare a contingency plan to prepare for a no-deal scenario. In the Central Economic Work Conference (CEWC) likely to be convened in mid-December, the government may set a more flexible growth target of 6.0-6.5% for 2019, versus “around 6.5%” for this year. In addition, the government may increase the budget deficit to 3% of GDP, and raise the local government bond issuance quota.”
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