Based on the news so far, US President Donald Trump has won the trade war after a 90 day truce was agreed which puts the pressure on China to accede to US requests.
Though China averted a 25% tariff on $200 billion of its exports to the US, it still has to contend with a 10% tarriff. However if the US does not get the deal it wants, the tarriffs goes up to 25%. China has 90 days to comply.
In return, China had to agree to buy more US industrial equipment and immediately increase its purchase of farming products. This will help offset political pressures from US farmers, in particular soybean farmers whose exports to China fell off the cliff over the past few months due to the trade war.
Even though the media is portraying this as a win-win, it is difficult to see how China achieved any success at all. The tarriffs stays at 10%, they have to comply to US demands and they have to let go of the little leverage they have over the US. Perhaps, the only victory is that Trump did not demand Jho Low’s extradition. Yes, China can keep Malaysia’s biggest thief but don’t expect any diplomatic support from Malaysia or its allies.
Financial Markets had rallied strongly in Asian trading with Dow Futures up 500 points at one time. However, any deeper reading will lead one to understand that basically nothing was agreed which will make things appear as a resolution. This was a “stall for time” tactic by China, but if China does not accede, it seems the next course of action is to escalate the trade war by what could be a nuclear option.
Is this a mark of a rally? Well, since uncertainty persists, it makes it a sustained rally difficult. If the markets do sell off, it could be quite brutal.