US, China Confirm They Held Talks On Phase 1 Trade Deal, But Stocks Unimpressed

Stocks have had a muted reaction to reports that the U.S. and China have renewed trade talks.

Just after the opening on markets in New York on Tuesday morning, the Dow Jones Industrial Average rose 40.46 points, or 0.14% to 28,348.92; the S&P 500 edged up 3.4 points, or 0.1% to 3,434.68; while Nasdaq slipped 35.4 points, or 0.31%, to 11,344.32.

The Office of the U.S. Trade Representative said that senior trade officials of the U.S. spoke on the phone with their Chinese counterparts to discuss implementation of the phase 1 trade deal signed last January.

“Ambassador [Robert] Lighthizer and [Treasury] Secretary [Steven] Mnuchin participated in a regularly scheduled call this evening with China’s Vice Premier Liu He to discuss implementation of the historic Phase 1 agreement between the United States and China,” USTR stated. “The parties addressed steps that China has taken to effectuate structural changes called for by the agreement that will ensure greater protection for intellectual property rights, remove impediments to American companies in the areas of financial services and agriculture, and eliminate forced technology transfer.”

USTR added that parties also discussed the “significant increases in purchases of U.S. products by China as well as future actions needed to implement the agreement. Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement.”

The Chinese government’s statement of the conversation omitted any concrete details.

“The two sides conducted a constructive dialogue on such issues as strengthening bilateral coordination of macroeconomic policies and the implementation of the China-U.S. phase-one economic and trade agreement,” Beijing’s Commerce Ministry’s stated. “The two sides agreed to create conditions and atmosphere to continue pushing forward the implementation of the trade deal.”

Since the trade deal was inked in January, tensions between the U.S. and China have escalated on a number of fronts – the emergence of the COVID-19 pandemic (which Trump has repeatedly blamed on China); Beijing’s imposition of a controversial security law in Hong Kong (which has been roundly condemned by most western powers); and Trump’s attempts to punish Chinese technology and software firms over alleged national security concerns.

But reactivated trade talks may calm some of the tensions. Under terms of the trade 1 deal, China agreed to purchase more U.S. technological and agricultural products and apply intellectual property safeguards in exchange for an easing on tariffs on Chinese imports into the U.S.

However, partly due to the impacts of the pandemic, Chinese purchases of U.S. goods have lagged.

“U.S.-China talks are bullish for most commodities as Trump is desperate for good news to help in the election,” said Ole Houe, director of advisory services at the agriculture brokerage IKON Commodities in Sydney, according to Reuters. “It could lead to higher demand for U.S. products.”

Sushant Gupta, research director at the Wood Mackenzie consultancy, said he expects China to import more American [liquefied petroleum gas], propane and ethane in the second half of this year, but he does not think China will increase imports of U.S. crude oil to meet the Phase 1 targets.

Karishma Vaswani, business correspondent at BBC, wrote that the timing of renewed trade talks might have been politically motivated.

“As President Trump heads into a week of the Republican National Convention, striking a deal with China on long-standing issues makes for good headlines, allowing him to say that only the Trump administration can get Beijing to the table,” she wrote.

“The pressure on Chinese companies from Washington has also come at a time when President Trump wants to show that he is tough on China – in contrast to 'Beijing Biden,’ as he and his supporters have called Joe Biden, who they say if elected would be softer on China than Mr. Trump," she continued. "Beijing is watching all of this political theatre, in which it has become the central character, carefully – keeping cards close to its chest.”