US and China finally sign ‘Phase 1’ trade deal, but issues still loom

A US official reportedly said more tariffs could be reversed in the second phase after evaluating the outcome of the first agreement.

Trump and Chinese vice-president Liu He signed the deal in the White House. The US president announced that he will visit Beijing also in the “not-too-distant future”.

US stock markets jumped to a record high ahead of the signing while Europe closed flat before the deal, awaiting details of the agreement.

On Wall Street, the Dow Jones Industrial Average rose 148.3 points, or 0.51 per cent, to 29,087.97. The S&P 500 gained 12.62 points, or 0.38 per cent, to 3,295.77 and the Nasdaq Composite added 35.70 points, or 0.39 per cent, to 9,287.03.

In Europe, shares ended flat as investors held back from making any big bets ahead of the signing of the phase one trade deal. The pan-European Stoxx 600 index closed 0.01 per cent higher after remaining range-bound for most of the day.

Britain’s FTSE 100 edged 0.1 per cent higher to 7,632, while the CAC 40 in Paris was down 0.2 per cent at 6,028. In Germany, the DAX lost 0.2 per cent to 13,431 after new figures showed the country’s economy grew just 0.6 per cent last year, its weakest in years.

Crude oil prices on Wednesday fell about 1 per cent to their lowest in over a month, after a US report showed big increases in gasoline and distillates inventories and as crude production rose to a new record.

Brent futures fell 60¢, or 0.9 per cent, to $63.89 a barrel by

1618GMT, while US West Texas

Intermediate (WTI) crude was down 58¢, or 1 per cent, at $57.65.

WTI was trading at its lowest since

December 4, while Brent crude was at its lowest since December 11.

Larry Kudlow, economic adviser of the US president, said the trade deal will boost US GDP growth by half-a-per cent in both 2020 and 2021.

However, the impact on the UAE and other regional oil-exporting countries from the phase one deal will be negligible as oil prices is unlikely to be influenced by the agreement.

Timothy Fox, head of research and chief economist at Emirates NBD Research, said ahead of the US-China trade agreement that there was some optimism about the deal as the White House dropped its “currency manipulator” label on China, seen as a sign of goodwill ahead of Wednesday’s deal.

Most analysts, however, say any meaningful resolution of the main US allegation — that Beijing uses predatory tactics in its drive to supplant America’s technological supremacy — could require years of contentious talks. Skeptics say a satisfactory resolution may be next to impossible given China’s ambitions to become the global leader in such advanced technologies as driverless cars and artificial intelligence.

This first phase “hardly addresses in any substantive way the fundamental sources of trade and economic tensions between the two sides, which will continue to fester”, said Eswar Prasad, a Cornell University economist and and former head of the International Monetary Fund’s China division.

“I find a radical shift in Chinese spending unlikely. I have low expectations for meeting stated goals,” said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis. “But I do think the whole negotiation has moved the football forward for both the US and China.”

This first phase hardly addresses in any substantive way the fundamental sources of trade and economic tensions between the two sides, which will continue to fester Eswar Prasad,

Former head of IMF’s China division