After a highly successful meeting, US and China call for a truce on trade war

Calling a truce on a trade war over a steak dinner meal of grilled sirloin and bottles of Malbec, that’s what the leaders of the world’s two largest economies did on Saturday. At the G20 summit, United States (US) President Donald Trump agreed to put a hold on new tariffs while China President Xi Jinping nodded to ramp up purchases of American products.

Mr Trump will postpone the plan to raise tariffs on US$200 billion worth of Chinese goods from 10% to 25% coming January 1. Mr Xi on the other side of the bench agreed to an undisclosed amount of increase in their purchases of US industrial, energy and agricultural products. The White House statement, which announced the compromise, called the meeting a “highly successful” one.

Both countries plan to reach a broader trade agreement under a deadline of 90 days. In the White House statement, it warned that the US will raise the exiting tariff rate to 25% if both parties do not come to terms by the deadline.

The momentary truce is likely to calm the jitters in the financial markets and local businesses on both ends.

Both the US and Chinese officials have been trying to negotiate for a compromise over the last few weeks, and the G20 summit meeting was where both leaders would sit down and discuss about their ongoing tariff war.

The US has hit a total US$250 billion worth of Chinese goods with tariffs since July, and China has retaliated by imposing duties on US$110 billion of US goods. Currently, US$50 billion worth of goods is already taxed at 25%, while the remaining US$200 billion due January 1 is currently taxed at 10%.

Investors cheer over surprise breakthrough US-China tariff negotiations

Just days before the G20 summit, President Trump said the current tariff levels on US$200 billion of Chinese imports would rise as planned, and even threatened to impose additional tariffs if no deal was made. Moments before leaving US for Argentina on Thursday, the US President said he was unsure of striking any deal with China, claiming that he “like(s) the deal” now.

The compromise on Saturday surprised markets as experts had not been expecting much from the two leaders at the G20 meeting.

The US market reacted positively upon the news, with the S&P 500 e-mini futures up 1.55% on Sunday, while the Dow Jones Industrial Average e-mini futures rose 1.66%. Nasdaq 100 e-mini futures jumped almost 2%.

Australian shares also started the week higher on Monday, with mining stocks likely to boost the benchmark. The local share price index futures rose 0.4%, while New Zealand’s benchmark S&P/NZX 50 index rose 0.42% in early trade.