China has incentive to end tariff tit-for-tat – ABN AMRO

ABN AMRO Senior Economist Arjen van Dijkhuizen said the latest macroeconomic data releases from China suggest that China has incentive to end tariff tit-for-tat.

Key quotes

“After a re-escalation of the US-China trade/tech conflict last May, over the past months we have seen tentative signs of de-escalation. That suggests some shift of political calculus in both Washington and Beijing, with US presidential elections looming in November next year.”

“Both countries have granted tariff exemptions to each other. Last month, US president Trump announced a so-called ‘Phase one-deal’. That entailed the US from refraining from further tariff hikes and China to step up agricultural imports from the US. This partial trade deal allegedly should be signed by Trump and Xi later this year, on a time and place still to be announced.”

“The mid November APEC summit in Chile, where both gentlemen were supposed to meet, was cancelled for domestic reasons. The latest macro data suggest that not only the US but also China has a clear incentive to at least put an end to the tariff tit-for-tat, with new US tariffs due on 15 December without a short-term deal. Uncertainties remain however, for instance on how much rollback on existing tariffs could be agreed on and under what conditions (such as an enforcement mechanism). Given that both parties remain wide apart on some fundamental issues, a comprehensive deal still looks out of sight for now and strategic tensions between the two will likely linger.”