US deal with China - the "hard chunks" are yet to come

Just in time for the beginning of the election year, the US government has succeeded in reaching a first interim agreement in the trade conflict with China. The sudden agreement after months of "back and forth" is certainly due to Trump's re-election on November 3, which is at stake. But basically it is only a cease-fire with a partial withdrawal of the punitive tariffs already imposed.

This can be seen above all in the fact that further trade talks are due to begin immediately. These will then deal with issues such as China's industrial policy and the protection of intellectual property. In other words, ultimately the really "hard chunks", where China is unlikely to give in. If these talks stall and even the increase in demand does not match the promised quantities, there is a great danger that the conflict will intensify again. The course of the election campaign is also likely to play a role here.

In view of this uncertainty, the export industry in particular is likely to remain reluctant to invest. On the other hand, increased stockpiling of consumer goods, which are usually imported from China by the major retailers, can be expected. After all, it is by no means certain that punitive tariffs will not be imposed on these goods either. In addition, the positive effect of the increase in exports to China will be offset by a braking effect due to the partial curtailment of production by aircraft manufacturer Boeing.

However, it is questionable whether the substantial increase in demand for US goods promised by China will occur within only two years. On the one hand, it is only possible to increase production so significantly in the short term for a few goods. On the other hand, farmers have meanwhile grown other types of grain than the soybeans that are usually in high demand in China. The most likely way to achieve the sales targets is still in the services sector, which includes tourism. Ultimately, the positive impetus for growth will probably be limited; we continue to expect economic growth of around two percent this year.

The economic climate also speaks against a visible economic acceleration in the USA. The December surveys again showed a mixed picture. The mood among service providers remained well above the growth threshold, while the industrial climate clouded over even further, despite the fact that an agreement with China was already in the offing. In contrast, the consumer survey indicates that purchasing activity remains solid. Private consumption should therefore continue to play its role as a guarantor of growth this year.

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