Why the Market is Sceptical of the China Trade Truce

Lack of agreement on details, new negotiator’s hard line, and other complicated issues have made investors wary

Stephen Ellis 5 December, 2018 | 9:55AM

 

Stephen Ellis: The market has been, rightly, I think, sceptical around the Trump and the U.S.-China trade truce agreement announced over the weekend. We think the market is sceptical for three major reasons. 

First, if you look at the readouts from the China and the U.S. delegations, there's not necessarily a lot of agreement between the two. For example, the U.S. called for China to push for a large increase in agricultural product purchases immediately whereas the China release says nothing about that.

Similarly, the China release says that the U.S. will respect China's One China policy whereas the U.S. release didn't say anything about that. So net-net, it creates a lot of confusion about what is needed for this type of agreement to be successful. 

Second, Robert Lighthizer has been appointed the new lead negotiator for the U.S.-China trade negotiations. He is generally someone who's had a harder line on China in the past, and so therefore China's going to take a while to get used to dealing with a negotiator who could, again, take time. 

Third, and most importantly, the core issues that are at stake here in terms of IP stuff, technology transfer, industrial policy, Made in China 2025, and cyber wars, these are issues that have been going on for years and, of course, extremely complicated. Resolving them in 90 days would be very unrealistic.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Stephen Ellis  Stephen Ellis is a senior stock analyst on the Energy Team.