Stocks are rallying today after the U.S. and China agreed to suspend their trade war. But will it lead to a lasting peace?
That’s the important question because a lot can happen during the 90-day delay. The immediate positive is that an increase in U.S. tariffs from 10 percent to 25 percent won’t take effect on January 1. However, their reinstatement remains an open-ended threat. Traders may want to keep an eye on President Trump’s Twitter feed for more on that.
U.S. Treasury Secretary Seven Mnuchin seemed to highlight the preliminary nature of the deal, saying he’s “hopeful we can turn this into a real agreement.” He also emphasized that more negotiation is necessary and China must respect intellectual property.
Agricultural exports like soybeans are poised to benefit after Beijing suggested it will buy “very substantial” amounts of American commodities. That’s good news for tractor maker Deere (DE) today. But once again, details need to be finalized.
President Trump also tweeted that China will reduce its duties on U.S. automobiles. That helped lift General Motors (GM), Fiat Chrysler (FCAU) and Ford Motor (F), although details also need to be worked out.
Taking a step back, it might be true that the more things change, the more they stay the same. Trade disputes between the U.S. and China have grown commonplace in the last year, and this week’s truce may be little more than a brief period of calm. It’s not clear that any real underlying agreements were reached.
This is important because as long as negotiations are underway, markets remain vulnerable to incremental news. President Trump or advisers like Larry Kudlow and Peter Navarro will remain big news makers. Along the way, we’ll all be left wondering whether instances of tough talk and nice talk are simply bargaining tactics.
Overall, today’s bounce definitely reduces worries in the short term. But as time rolls on, it might turn into déjà vu, all over again.