US. President Donald Trump attends a bilateral meeting with Chinese President Xi Jinping during the G20 Leaders' Summit on 29 June 2019 in Osaka, Japan.
Kevin Lamarque | Reuters
The United States and China have been here before.
Following the threat of potentially devastating tariffs, President Donald Trump retired after talks with Chinese President Xi Jinping at the G20 summit in Japan on Saturday.
Trump and Xi, both of whom praise their close personal relationship, reached a similar agreement at last year's G20 summit in Argentina at the end of last year.
But these talks ultimately failed and tariffs are much higher today than they were at the beginning of May.
And if the story is a clue to the future, the gentlemen's agreement, signed at the weekend in Osaka between leaders of the world's two largest economies, offers no clear way to reduce tariffs and one Ending trade war, which threatens to overturn the world economy into recession.
"It's a temporary break," said Peter Boockvar, chief investment officer of the Bleakley Advisory Group, to CNBC. "I see no way to a business and we are stuck with 25% duty on goods worth $ 250 billion."
Boockvar is not alone. The Eurasia Group, for its part, sees only a 45% chance of a trade deal being concluded this year.
And Trump seems to be in no hurry. Before joining Xi on Saturday, the president made it clear in an interview with Fox Business News that, while he believes an agreement is possible, he does not feel the urgency of lifting tariffs.
"I'm also very happy with where we are now," said Trump. "We're taking a fortune, and frankly [it̵
The business world by and large disagrees.
More than 600 US companies, including Target and Walmart, had urged Trump not to introduce additional tariffs and warned that such a move could cost 2 million US jobs.
While the business groups welcomed the renewed talks on Saturday, they made it clear they were still looking forward to a final deal. According to Boockvar, there is little reason to celebrate.
"If I'm a CEO, and I'm waiting to see how things go this weekend, will it make me feel better?" When I'm in manufacturing I may feel a little better, it's not any worse in the short term, but me. " I still have to deal with this 25% tariff and there are more and more tariffs threatening, "he said.
Intellectual property remains a big sticking point Changes are domestic laws aimed at protecting the intellectual property of foreign, especially American, companies
This is a key issue for the Trump administration, with the May presidential decision to raise US $ 200 billion in tariffs to 25 percent after Beijing allegedly made important commitments in the US In fact, China's Deputy Prime Minister Liu Er has merely affirmed Beijing's position that an agreement must be balanced and "expressed in terms acceptable to the Chinese people and."
do not undermine the sovereignty and dignity of the country. "
After Boo Coming to China and asking China to change its domestic law would be like asking Beijing to make constitutional changes to meet its economic demands.
"The US will have to accept that China will not enforce IP protection," Boockvar said.
But the Trump administration seems unwilling to address this issue. US Representative Robert Lighthizer rejected China's call for a balanced intellectual property deal.
This leaves the market largely behind when Trump accused China of breaking its commitments in May, Boockvar said. The only difference is that the Fed will lower interest rates, he added, which was not an option at the time.
Trump faces the elections – and China
Although a deal may or may not be made this year, Trump has at least an incentive to delay the tariff increase until after the 2020 presidential election.
Trump needs good economic performance and another pay rise could, according to Ed Yardeni, president of Yardeni Research, "quite disturb the US economy".
"There is no point in escalating the trade war now, creating problems in the economy and losing the elections, in which case China will be able to negotiate with a completely different president in 2021," Yardeni said.
And Beijing has its own incentives to wait for the US presidential election. If they continue the negotiations until the elections, they will know whether they have to deal with Trump or anyone else, added Yardeni. However, Goldman Sachs' base case remains a 10% tariff on the remaining $ 300 billion of Chinese imports, which are below the 25% rate proposed by the USTR, "the bank said in a note before G-20 summit.
Goldman made it clear that the US and China are signing up for negotiations and back "Additional tariffs could be added later this year," they said.
And, according to Boockvar, the effects could be devastating if Trump decides to defuse his threat and raise tariffs on China's remaining $ 300 billion in exports to the United States.
"You can guarantee a global recession." he said.