Market Overview

US, China May Be One Step Closer To Ending The Trade War

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US, China May Be One Step Closer To Ending The Trade War

After a year of threats, tariffs and retaliations, one of the biggest overhangs for the stock market may soon be coming to an end.

What Happened

On Thursday, Reuters reported U.S. and Chinese representatives are outlining a new deal that could soon bring an end to the trade war between the two nations. According to sources familiar with the matter, the U.S. and China are still far apart on several key issues, but a framework for a potential deal is starting to emerge ahead of a key trade talk deadline on March 1.

Talks are reportedly focused on six areas: forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.

Why It’s Important

President Donald Trump previously said he would be raising tariffs on $200 billion of Chinese goods from 10 percent to 25 percent starting on Jan. 1, 2019. However, in early December, Trump agreed to a 90-day truce to allow the U.S. and China to negotiate a trade deal prior to a Match 1 deadline.

U.S. Trade Representative Robert Lighthizer subsequently called March 1 a “hard deadline” for China. However, Trump this week seemingly downplayed the imminent deadline, saying March 1 “is not a magical date.”

"The real question will be: will we raise the tariffs?" Trump said. “I think they are trying to move fast so that doesn't happen. But we'll see what happens.”

This week, the China’s state-run newspaper the Global Times said that if Trump raised tariffs on China, China will be forced to retaliate with “fiercer countermeasures” that would result in “a catastrophic strike to global stock markets.”

What’s Next

The U.S. and China have one week to make enough progress on a potential deal to convince Trump not to raise tariffs on March 1.

So far, investors don’t seem too concerned about the March 1 deadline. Year-to-date, the SPDR S&P 500 ETF Trust (NYSE: SPY) is up 11 percent and the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) is up 11.7 percent.

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