Economic News, & Blog Updates

Phase One and Phase C

Written by Connor Lokar | Jan 14, 2020 6:08:51 PM

It appears we are on track for the first meaningful de-escalation of the US-China trade war this week. President Donald Trump and China Vice Premier Lui He are planning to sign the trade deal's first stage, appropriately named "phase one," on Wednesday, Jan. 15. This is not the end of the US-China trade war, but the first step away from the precipice of total economic warfare, toward which both countries had been advancing for some time.

As the name indicates, this is phase one, the first of several to come. It does not carry broad and sweeping finality. In fact, it appears at first glance to be largely symbolic. As of now, the phase one trade deal text has not been posted and details are scant. Reporting indicates it will be posted on the US Trade Representative website as the agreement is being signed. The firmest detail seems to be that China will be significantly ramping up agricultural purchases and the US will be lowering tariffs on some Chinese products. Again, we will have more visibility soon, but the substance of phase one appears to be gestures of goodwill from both sides. It apparently lacks much language regarding larger issues, such as intellectual property theft, forced technology transfers, cyberattacks, product dumping, subsidized state-owned enterprises and subsidies, etc.

The reality is that both the US and global economies are already on the back side of the business cycle, and this phase one deal will not change that. Do not expect an immediate, sweeping change to our macroeconomic outlook in response to this initial stage of the deal. Both global and domestic leading indicators have clearly mapped out that the US and global economies will face downside pressure into mid-2020 before rising business cycle trends emerge during the second half of the year.

We will evaluate our domestic and global leading indicators in the months ahead to get a read on what implication, if any, this deal may have on the economic landscape later this year and beyond. Being an ITR Insiderâ„¢ subscriber is a great way to keep up with such developments. In the immediate future, the trade truce's most appreciable and positive impact could be its potential stabilizing effect. The removal of some uncertainty from the global landscape this year would be a welcome change from the increasingly uncertain environment that dragged on global growth in 2019. 

 

Connor Lokar
Economist