The sporadic trade negotiations between the US and China have been paused as President Trump has agreed to a phase one agreement in principle as December 15th looms large.
Trump reportedly signed off on a phase one trade deal with China, averting the December 15th deadline which would trigger duction anothere round of U.S. tariffs on about $160 billion on imports of Chinese consumer goods. The phase one deal was always going to be about banking the easy wins. China has reputedly agreed to buy more US agricultural produce in exchange for tariff relief, the phase-one pact will also include Chinese commitments to do more to stop intellectual-property theft and an agreement by both sides not to manipulate their currencies.
The "Trade War" has dominated the last 18 months of global oil markets. The imposition of tariffs and tit for tat reprisals has weighed heavily on global crude oil demand. Demand has slowed just at the time there is far too much crude available. The market has been sensitive to any news of progress, with Trump's tweets creating undue market volatility. Scarred by the events of 2014,
OPEC and its partners have worked tirelrssly to balance the market, thus ensuring stable crude prices. Now the prospect of a phase one deal is bringing back a measure of confidence to the markets on the expectation of growth in global GDP.
There is no legal text to show yet and there has neither been a formal announcement or any presentation. But such was the effect of the Trump tweet today, that it raised US main stock indexes by over 1%. Despite President Trump repeatedly declaring progress toward a deal that would end the trade war, which has seen tariffs imposed on more than $450bn worth of US-China trade and weighed on the global economy, his tweets always seem to get a rise out of the market. Yet there is substantial criticism, much of it from China hawks within his own party. To quote former USTR Mike Froman ," this should NOT be described as a trade agreement. It is a purchase and sale agreement that does virtually nothing to address substantive concerns of US (+rest of the world) with China's trade practices. +US farmers + consumers paid heavy price...". The US reportedly offered to halve tariff rates on about $350bn worth of Chinese goods, some of which had climbed as high as 25%.
The skepticism does not stop there with many commentators cynically asking When do we get to the final deal?, in which Trump gets little or nothing and promptly declares it the greatest deal ever?
The simple truth is that the "trade war" is nothing of the sort, it is a proxy for an existential battle. The US objective extends to every other domain of Sino-American relations. Washington now seeks to dismantle its interdependence with China by decoupling it from the American economy, curb its role in global governance, counter its foreign investments, cripple its companies, block its technological advance, punish its many deviations from liberal ideology, contest its borders, map its defenses, and sustain the ability to penetrate those defenses at will. All at the same time as supporting dissidents in Hong Kong.
The US went to war with China to stop IP theft and forced technology transfer, negotiate changes to the way China s subsidises its industries and improve US access to China's markets. To convert China into a libertarian free market economy: and that is the reason the trade war will never satisfactorily be resolved. The two protagonists will forge a relationship characterised by skirmishes and spats. The global oil market will continue to rely on both for demand growth, yet cheap energy is as desirable as trade deals in promoting economic activity and growth.
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