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Trump and Xi agree on negotiations but give no clear way to end the trade war



U.S. President Donald Trump attends a bilateral meeting with China's President Xi Jinping during the G20 summit in Osaka, Japan, on June 29, 2019.

Kevin Lamarque | Reuters

The United States and China have been here before.

After threatening to impose potentially devastating tariffs, President Donald Trump retired in the wake of talks with Chinese President Xi Jinping at the G20 Japan Summit on Saturday.

Trump and Xi, both to their strong personal relationships, reached a similar deal at the previous G20 summit in Argentina at the end of last year.

But those talks ultimately failed and the tariffs today are much higher than they were as early as early May.

And if history is a guide to the future, gentlemen's agreement between the leaders of the world's two largest economies on the weekend in Osaka did not clear the way to roll back the tariffs and end a trade war threatening to tip the global economy to recession .

"It's a temporary timeout," said Peter Boockvar, investment manager at Bleakley Advisory Group, CNBC. "I see no way for a deal and we are stuck with 25% tariffs of $ 250 billion of goods."

Boockvar is not alone. The Eurasia Group, for its part, sees only a 45% chance of a trade agreement being made this year.

And Trump is apparently without rush. Before joining Xi on Saturday, the president stated in an interview with Fox Business News that while he thinks that an agreement is possible, he does not feel it is necessary to raise the tariffs.

"I'm also very happy with where we are now," trump said. "We take a fortune and honestly [it̵

7;s] not very good for China, but that's a good thing for us."

The business association largely disagrees.

More than 600 US companies, including Target and Walmart, had urged Trump not to impose additional tariffs and warn that such a move could cost 2 million US jobs.

And while business groups on Saturday welcomed the renewed negotiations, they made it clear that they were still waiting for a final agreement. According to Boockvar, there is little reason to celebrate.

"If I'm a CEO and waiting for this weekend to go, I feel better? If I'm in production, maybe I feel better, it's not worse in the short term, but I still have to to deal with this 25% duty and the threat of more tariffs is over, "he said.

Intellectual Property is Still a Big Point

The problem is that China sees little reason to give US demands for change is national law to increase the protection of intellectual property rights for foreign, especially US companies.

It's a key point for the Trump administration. The President's decision in May to raise tariffs to 25% of $ 200 billion in Chinese goods came after Beijing allegedly tracked down key commitments under a draft agreement, including the protection of intellectual property rights.

In fact, Chinese Vice President Liu Han has only repeated Ping's view that an agreement should be balanced and expressed as "acceptable to the Chinese people and not undermine its sovereignty and dignity".

According to Boockvar asking China to change its national law, would be like Beijing and ask the United States to make constitutional changes to meet economic demands.

"The United States will have to accept that China will not put IP protection into law," Boockvar said.

But the Trump administration didn't seem ready to give in at that time. US Trade Representative Robert Lighthizer has rejected China's demand for a balanced agreement referring to intellectual property.

It leaves the market pretty much where it was when Trump accused China of breaking its commitments in May, Boockvar said. The only difference is that the Fed should reduce rates, he added, which was not an option at the time.

U.S. election arms for Trump – and China

While an agreement may or may not materialize this year, Trump has at least an incentive to stick to rising tariffs until after the presidential elections in 2020.

Trump needs the economy to work well and another tariff increase could be "quite disruptive to the US economy," according to Ed Yardeni, President of Yardeni Research.

"There is no point escalating the commercial war now and creating problems in the economy and losing the election, in which case China will be able to negotiate with a completely different president, coming in 2021," Yardeni said.

And Beijing has its own incentives to wait for the US presidential election. If they keep the talks on their way to the election, then they know whether to treat Trump or another, Yardeni added.

Still Goldman Sachs' base base, however, remains a 10% rate on the remaining $ 300 billion of Chinese imports, lower than the 25% rate proposed by the USTR, "said the bank in a note before the G20 summit.

Goldman made it clear that although the United States and China commit themselves to negotiations and back off tariff increases for now, as they did, "there could still be additional tariffs later this year."

And according to Boockvar, if Trump Decide to do well for its threat and introduce tariffs on China's remaining $ 300 billion in exports to the United States, the impact may be devastating.

"You can guarantee a global recession," he said.


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