Deal done?

Stock markets around the world are liking news of an apparent deal between the U.S. and China on their trade dispute ahead of the all-important Trump-Xi meeting at the G20 this weekend. As SCMP reports:

The US and China have tentatively agreed to another truce in their trade war in order to resume talks aimed at resolving the dispute, sources familiar with the situation said.

Details of the agreement are being laid out in press releases in advance of the meeting between Chinese President Xi Jinping and US President Donald Trump at the Group of 20 summit in Osaka, Japan, this weekend, according to three sources – one in Beijing and two in Washington. Such an agreement would avert the next round of tariffs on an additional US$300 billion of Chinese imports, which if applied would extend punitive tariffs to virtually all the country’s shipments to the United States.

However, as realists among the political-analyst community continue to point out, deals like this are patch-up jobs, and will continue to be so for the foreseeable future. The two sides remain far apart on fundamentals.

That doesn’t mean it is all bad news ahead. On the contrary, China in the meantime – and especially in the GBA – is shifting as fast as it can to getting US proprietary technology out of its supply chain, which is having a galvanizing effect on the economy. In particular, three priorities are being pursued AVAP (as vigorously as possible): 1) Like Gree, invest tens of billions in MYOC (make your own chips) and other key tech; 2) Offer every subsidy you can think of to attract talented people into your “innovation hubs”; and 3) Refocus your sales teams on a) domestic markets and b) Non-U.S. markets.

To be sure, GBA investors have much to be thankful for. Companies here look likely to get a bit of short-term breathing space, while the bigger picture of “industrial upgrading” continues apace. As Michael Enright, the GBA guru at Hong Kong University, likes to point out, think of the GBA within China, a market of 1.4b people, the way you would think of Germany within Europe at the early stages of the post-war period. It’s easy if you try.

Read more on the deal at SCMP. 

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