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According to analysts at ABN AMRO, the escalation of trade/tech tensions between the US and China since early 2018 has been a key headwind for global growth.

Key Quotes

“After a re-escalation of US-China tensions since May 2019 – with new tariffs introduced, existing tariffs raised and all kinds of non-tariff measures taken as well – we have seen over the past month some goodwill gestures by both sides suggesting a potential shift in political calculus in both Washington and Beijing. This latest development follows that trend – with hostilities seemingly on hold rather than definitively ending.”

“The preliminary agreement entails the US from refraining from a scheduled – previously postponed – tariff hike per 15 October (from 25% to 30% on USD 250bn of imports from China) in exchange for China further stepping up agricultural imports from the US. Crucially, the 15% on the remaining $175bn of imports yet to be tariffed (scheduled for 15 December) remains on the table as negotiating leverage.”

“Moreover, the US and China will work on an agreement on exchange rate policies and the protection of intellectual property. While the announcement of this partial deal was welcomed by financial markets and it reduces downside risks somewhat, it does little by itself to change the macro scenario, with businesses likely having built in persistent uncertainty to trade policy into their baseline outlooks.”

“We remain comfortable with our below-consensus growth forecasts. Even if a more definitive deal is reached in November, we think that strategic tensions, particularly on the technology front, will linger.”