Remember when the trade war with China was going to tank the economy and the stock market? Yea, didn't happen.
Instead, the U.S. economic data is robust and the S&P 500 stock index is near a record high as a trade deal between the two countries is rumored to be announced as soon as the week ahead. CNBC sources say a deal is "possible" by Friday.
The number two person in the Chinese government, Vice Premier Liu He, is expected in Washington during the week. His trip signals talks are maturing toward some kind of outcome after months of on-again, off-again discussions and after both countries have traded escalating tariffs.
Remember, though, the tough trade stance taken by the Trump Administration against China isn't about tariffs. Sure, tariffs are the tool the administration has used to bring China to the table, but what the White House is after are protections for American know-how. The first formal action was a 2017 presidential memo that laid out the defense of U.S. intellectual property in China.
This is how investors should assess any trade agreement. Beyond any deal to reduce or eliminate the billions of dollars of tariffs each country has levied on thousands of products, how does any agreement address "violations of intellectual property rights and other unfair technology transfers" that were the basis for starting the trade war in the first place.
Tensions have eased somewhat even as the tariffs have taken hold. Still, the taxes have hurt business. The Institute or International Finance, in an analysis for Bloomberg, estimates Chinese tariffs on American-made goods cost $40 billion annually in lost U.S. exports to China.
Rolling back tariffs may provide an emotional relief for worries over their prolonged affect on global trade and trade relations, but addressing how the two conduct trade policies is the real test of these talks.
