US-China trade deal boosts local market confidence

Donald Trump sealing a phase-one trade agreement with China has delivered a temporary truce in the superpowers’ destructive trade war. More difficult negotiations await in phase two. But the breakthrough should be a boost to international economic confidence, a point appreciated by Australian investors who propelled the ASX to its third record-breaking session in a row on Thursday. It surpassed the 7000 barrier within minutes of opening and maintained momentum to close on 7041.8, a gain of 0.67 per cent. The market took its cue from the US Dow Jones Industrial Average, which had lifted past 29,000 for the first time on the optimism generated by the deal.

As Washington correspondent Cameron Stewart reported, the 86-page deal requires China to buy $US200bn more in US goods in the next two years and take steps towards removing unfair trade practices. These include China pledging to give US companies greater access to its financial services, to give greater protection to US intellectual property and to refrain from manipulating the Chinese yuan to assist its exporters. In return the US will cancel planned new tariffs on $US156bn of Chinese goods and halve the 15 per cent tariff on $US120bn of Chinese goods imposed last September. The deal, “which most people thought would never happen” according to Mr Trump, will help him in the lead-up to the November election, allowing him to point to the effectiveness of the tariffs he imposed on Chinese goods. Because the deal includes new purchases by China of $US32bn in US agricultural products it will ease the pain the trade war has caused farmers in swing states.

While it is easy to sneer, as Democratic presidential frontrunner Joe Biden and others did on Thursday, the deal should help alleviate a serious slowdown in the global economy that has threatened investment and jobs. In a statement in The Australian last September, Josh Frydenberg and the treasurers and finance ministers of Canada, Indonesia and Singapore called on the US and China to end the trade war, warning of collateral damage to other nations. “Uncertainty over the outlook is contributing to a slowdown in trade and manufacturing activity,” they said. “We have seen a return of financial market volatility, currency instability and decreased capital flows to emerging economies. Dampened global trade conditions are affecting investor confidence, business investment and productivity … Growth has slowed and risks remain tilted to the downside … we should be clear that protecting free and open markets will ensure stronger growth and greater prosperity for all. We must not resort to unilateralism and protectionism.”

For Australia the deal could be a mixed blessing. While a revival in Chinese manufacturing would be a boon to iron ore and coal exporters, China ratcheting up purchases of US dairy, beef and liquefied natural gas exports could cost Australian producers dearly. For all the fretting over the trade war, some Australian exporters have done brilliantly out of it, as Adam Creighton reported on Thursday. The deal is another reminder why Australia must continue to strengthen trade relations with partners such as India, Indonesia, Britain, the EU and, as Creighton wrote on Tuesday, Taiwan.

Chinese President Xi Jinping, in a letter to Mr Trump, said the deal was “good for China, the US and the whole world”. But it leaves hard work to be done. Tariffs will remain in place on two-thirds of Chinese imports to the US, affording leverage as negotiators tackle unfair trade and commercial practices, including the theft of US companies’ intellectual property by Chinese companies. Phase two of the process is unlikely to be completed before the US election. As Trade Minister Simon Birmingham said on Thursday, the deal is “a truce rather than a complete elimination of trade tensions between the US and China”. For Australia, he said, its upsides outweigh the downsides.