Wall Street pop could fizzle without real results from China trade truce

“This is an uncertain pause — no immediate escalation, but still no clear path towards a comprehensive deal,” said Chetan Ahya, chief Asia economist with the New York investment bank Morgan Stanley. “Our overarching conclusion is that the developments over the weekend on their own don’t do enough to remove the uncertainty created by trade tensions.”

The Trump administration agreed to refrain for now from imposing 25% duties on $325 billion in Chinese imports, essentially the remainder of goods imported from the world’s second-largest economy, though the levies on $250 billion of products will remain in place. U.S. companies will be allowed to sell supplies to Chinese telecommunications giant Huawei, but the firm still can’t sell its products to American buyers.

The progress, while welcome, isn’t enough to overcome the confusion among business leaders over Trump’s array of existing and contemplated tariffs. The duties have prompted delays in major investments until executives are more confident of a stable playing field and spurred warnings from economists and even Republican lawmakers that the administration’s trade policy is undercutting gains from the 2017 tax cuts.

“No news isn’t necessarily good news when the status quo keeps getting incrementally worse,” Aditya Bhave, a senior global economist with Bank of America, told reporters on Monday.

When Trump and Xi agreed in November to a cease-fire for further talks, the U.S. had imposed 25% duties on $50 billion of Chinese imports and 10% levies on another $200 billion. Following an impasse in those talks in May, the assessments have reached a blanket 25%, and the potential for additional tariffs remains — including on automobile imports and parts.

For the U.S. and China to reach a permanent agreement, “both sides need to be motivated by pain in the market, economically and politically,” Aditya said.

The Federal Reserve’s apparent willingness to reduce interest rates, in part to protect the U.S. economy from a trade war, may prove a barrier.

“Every time the Fed injects new easing into the economy, they’re helping growth, but they’re also taking pressure off the Trump administration in terms of the trade war,” said Ethan Harris, head of global economics at Bank of America. That creates the risk of a feedback loop in which the Fed protects the economy and “the trade war continues to escalate,” he said.

For now, investors “should remain braced for a bumpy ride toward a more conclusive deal,” said Mark Haefele, chief investment officer for the wealth management business of Swiss lender UBS. “Presidents Trump and Xi both have significant discretion over tariff policy and sudden shifts in negotiating positions are possible, if unpredictable. Also, if criticism mounts that Trump has given too much ground in terms of the truce, his position could abruptly shift.”

Already, some members of the Senate have pushed back on Trump’s concessions regarding Huawei, whose products national security experts say could be leveraged by the Chinese government for espionage.

“If President Trump has in fact bargained away the recent restrictions on Huawei, then we will have to get those restrictions put back in place through legislation,” Sen. Marco Rubio, a Florida Republican who lost his party’s presidential nomination to Trump in 2016, said on Twitter.