President Donald Trump reportedly said on the sidelines of the Group of 20 meeting in Japan on Saturday afternoon JST that the U.S. has agreed to refrain from adding new tariffs on Chinese imports, according to Xinhua, the Chinese-run news service.
“Cooperation and dialogue are better than friction and confrontation,” Chinese President Xi Jinping said, according to Xinhua, which said trade talks were set to resume.
President Trump earlier said “we had a really good meeting…perhaps better than expected,” according to a Twitter post by Washington Post reporter David Nakamura. A press conference appeared to be imminent, but did not begin by 2:40 a.m. ET.
“News that China and the U.S. will restart talks is probably the most we could have hoped for today, so in that sense, it’s positive,” said Neil Shearing, a chief economist with Capital Economics, in an email to TheStreet around 1 a.m. Saturday ET, following the news. “I expect it will give a lift to equity markets on Monday, particularly in countries and sectors most exposed to U.S.-China trade.”
But “we’ve been here before,” added Shearing, who’s based in London, referring to the headlines from spring about supposed progress in talks.
“I don’t believe that China will unilaterally make the fundamental adjustments to industrial policy that the hawks in the White House are demanding. So I wouldn’t be surprised if the talks ultimately break down again.”
The face-to-face meeting between the leaders of the world’s first- and second-largest economies was the first in about a half year, since both men met on the sidelines of the last G-20 meeting in Argentina in December.
In December, Trump and Xi made a deal that would hold off on raising tariffs on hundreds of billions of dollars in Chinese imports for a couple months, but over time the two failed to see eye-to-eye and the U.S. began increasing tariffs from 10% to 25%, with the Chinese responding in kind. While for months news of a possible deal and then subsequent let-downs shook up the markets, many interpreted Wall Street’s action toward the end of this week as a sign of detachment from any expected outcome over the weekend — despite the looming consequences of rolling out additional import fees.
“We estimate that Trump’s threatened 25% tariff on $300bn or so of imports would directly knock off around 0.3% from China’s GDP,” wrote Julian Evans-Pritchard, Mark Williams and Martin Rasmussen, three China economists for Capital Economics, in the lead-up to the talks between Trump and Xi at the G-20 in Osaka.
Washington was threatening to increase tariffs on $300 billion in additional imports from China if talks fell apart again, as they did nearly two months. That would be on top of the tariffs already in place.
But markets would “welcome any easing of trade tensions,” wrote Evans-Pritchard and his fellow economists in the June 28 Capital Economics note. They added that Chinese equities rallied in the lead up to the weekend and “already look to be pricing in a G20 ceasefire, but they may retain some positive momentum in the coming weeks if trade negotiations resume and appear to make progress.”
But like Shearing, Evans-Pritchard and his team were not so optimistic, noting that “We continue to think that Trump will eventually pull the trigger on his threatened 25% tariff, most likely early next year. We had also flagged the possibility of this being preceded by a lower 10% tariff, an idea that Trump himself now appears to support.”
They also bet that if China’s leaders feel a truce is too elusive, they will allow the nation’s currency to weaken to help lower the cost of its exports.