US and China ease trade war tensions by agreeing ‘framework’ truce in London – business live

The US and China have agreed to a framework in London to ease trade tensions, potentially resolving restrictions on rare earths and magnets, a key demand for the US; however, analysts express caution, citing the lack of specific details and the need for approval from both President Trump and President Xi. While Asian markets reacted positively, some analysts suggest that a broader trade agreement may still be distant, and the US and Mexico are also reportedly negotiating a deal to reduce Trump's steel tariffs, potentially through a quota arrangement.

Analysis

The United States and China have reached a framework agreement in London aimed at de-escalating trade tensions, which, if approved by both heads of state, is anticipated by US Commerce Secretary Howard Lutnick to resolve restrictions on rare earths and magnets—a key U.S. demand. Initial market reaction to the 'optimistic tone' of trade headlines has been positive, with Asian indices such as China's CSI300, Hong Kong's Hang Seng, and South Korea's KOSPI registering gains of approximately 0.8%, 1.0%, and 1.3% respectively. However, financial analysts, including Jim Reid of Deutsche Bank and Josh Lipsky of the Atlantic Council, express caution due to the current lack of specific details and the necessity for presidential approvals, with some fearing it is merely an 'export control skirmish' truce rather than a precursor to a broader trade agreement. Concerns persist regarding the pattern of previous talks in 2018-19 where progress faltered, and there was no reported advancement on other contentious issues like fentanyl-related tariffs. Concurrently, separate negotiations are reportedly underway between the U.S. and Mexico to potentially reduce or eliminate President Trump’s 50% steel tariffs, possibly through a quota arrangement. Investors are also keenly awaiting the upcoming U.S. Consumer Price Index (CPI) data, with economists forecasting a rise to 2.5% from 2.3%, which may reflect inflationary pressures potentially exacerbated by the trade war.

Key Decisions for Investors

• Investors should acknowledge the initial positive market response to the US-China trade framework but maintain a cautious stance due to the prevailing uncertainty, the lack of detailed terms, and the requirement for presidential ratifications.
• Closely monitor further announcements regarding the specifics of the US-China agreement, particularly concerning the extent of resolution on rare earth and magnet restrictions and any changes to US semiconductor export policies, as these will have direct sectoral implications.
• Pay attention to the upcoming US CPI data, forecasted at 2.5%, for indications of the trade conflict's impact on inflation, and remain updated on the U.S.-Mexico steel tariff negotiations which could influence specific industrial sectors.