Key Points

  • Statements released by the United States and China were consistent in describing a truce; but inconsistent in their details.

  • The hit to the U.S. economy has been small so far; but if the additional tariffs were to be implemented, the haircut to GDP becomes more severe.

  • Trade is but only one area of tensions between the United States and China—keeping the temperature down in the coming weeks will be crucial.

The stock market is in a festive mood as December gets underway. What started as a post-correction rally courtesy of more dovish statements from Federal Reserve Chairman Jerome Powell last week; got an additional spark from the post-dinner announcements from Presidents Trump and Xi at the G20 meeting over the weekend.

A truce was called by the two leaders, with tariffs paused at their current levels over the next 90 days while negotiators try to craft longer-term solutions to the two sides’ conflicts and disagreements. This is worth a cheer in the short-term, but some enthusiasm curbing may be in order beyond the stated time frame for negotiations. There was little in the two sides’ statements that would suggest the longer-term structural aspects of the United States-China rivalry.

In fact, there was little in the two sides’ statements that were even consistent. Even the press conferences were held separately—there was no joint session to discuss the outcome of the leaders’ dinner, allowing each side to spin it their way. Hat tip to our friends at High Frequency Economics for highlighting the statements’ differences.

White House statement from Press Secretary Sarah Huckabee Sanders:
“President Trump has agreed that on January 2, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time.”

Xinhua, China’s state news agency:
“Chinese President Xi Jinping and his U.S. counterpart, Donald Trump, agreed here Saturday to continue the trade talks between the two countries and stop imposing new tariffs.”

Sanders’ statement:
“China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial and other product from the United States to reduce the trade imbalance between our two counties. China has agreed to start purchasing agricultural product from our farmers immediately.” (Emphasis is mine, to highlight that there was not much in the way of an actual agreement on substance.)