DEVELOPING: US-China trade uncertainty fuels market plunge

Roman Schwartz
December 5, 2018

China's reticence contrasted with the parade of USA officials talking about the deal on Monday, including Treasury Secretary Steven Mnuchin and White House Economic Adviser Larry Kudlow.

Early Tuesday, Kudlow said the White House doesn't yet have a deal with China to reduce tariffs on USA -made cars, backtracking from a tweet by the president just two days earlier.

In a briefing to reporters, he also said the United States did not yet have a "specific agreement" on auto tariffs.

China only recently signaled that it may back off from its strict foreign ownership requirements for vehicle factories.

Mr Trump has said China is supposed to start buying agricultural products immediately and cut its 40 per cent tariffs on USA auto imports.

Treasury Secretary Steven Mnuchin, on Fox Business Network on Tuesday, put China's trade commitments at US$1.2 trillion (S$1.64 trillion), but said they need to be put "on paper".

Trump recently voiced frustration with General Motors' decision to close a handful of North American factories, including a plant near an OH city where he promised voters that jobs would finally be coming back under his leadership. Trump said on Monday, however, "We are dealing from great strength, but China likewise has much to gain if and when a deal is completed". In September, Washington went still further and announced 10 percent import duties on $200 billion worth of Chinese goods.

Another significant take-away from the preliminary agreement could be its impact on energy markets, both US oil import to China and perhaps even more importantly from a development perspective liquefied natural gas (LNG) imports.

Senior Chinese officials did not mention this deal in a news conference.

British MPs set to vote on 'contempt of parliament' accusation
The government said that in light of the vote it would publish the advice from Attorney General Geoffrey Cox on Wednesday. But the contempt vote sent sterling down against the dollar to $1.267, its lowest level since June 2017.

Beijing's decision to keep things vague, for now, may reflect a desire to avoid being seen as having capitulated under pressure - the sides have 90 days to reach a deal - or may be a hedge against Trump's unpredictability, analysts said.

As such, Trump was keen to reassure USA farmers that the negotiations with China would benefit them.

The markets - equity and bond markets - are expressing a pessimism quite at odds with Trump's boasts that "trade wars are great and easy to win" and with the notion that tariffs and tax cuts are the recipe for making the U.S. great again.

"We didn't really give up anything to China".

"That's what happens when you don't have the detailed negotiations going into the summit" and end up with the "broad swath of a 35,000-foot deal", said Bonnie Glaser, a China expert at the Center for Strategic and International Studies in Washington. Shares of major USA banks also took a dive with Citigroup, Morgan Stanley and Capital One bottoming out at 52-week lows. "I am a Tariff Man", Trump wrote on Twitter. In fact, the only definite thing to seemingly come out of the summit is the U.S. vowing to hold off on raising threatened tariffs for 90 days.

On Tuesday, the stock market plummeted in the wake of President Trump's troubling tweets about the possibility of a renewed trade war with China.

Trump and Xi also agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture, according to the White House statement.

Larry Kudlow, the White House's top economic adviser, said he couldn't speak to the reason why Beijing didn't include a timeframe in its own statement following the leader's dinner.

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