A new round of high-level talks and some potential giveback on tariffs by China was a bright spot in the U.S.-China trade war, but strategists say the peace could be fleeting and the situation could get worse before it gets better.
U.S. officials spoke by phone with their Chinese counterparts, and President Donald Trump said in a tweet Tuesday that things are going well, with "Very productive conversations." He also said he expects some important announcements.
This is the first sign of progress on trade since Trump met with China President Xi Jinping after the G-20 summit meeting in Buenos Aires earlier this month.
"There has to be structural reforms, and the Chinese are indicating they're willing to make those structural reforms, which means they're willing to make a deal," said Dan Clifton, head of policy research at Strategas. "They're worried about their supply chain. They're worried about their growth rate. The market didn't believe they wanted to do a deal seven days ago, but now we're seeing both sides want a deal...There's always going to be hiccups."
Stocks got a lift early Tuesday on the prospect that talks would be .productive, but the move was fleeting, and it's clear that the stock market is sensitive to developments related to trade progress.
China's Vice Premier Liu He reportedly spoke with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer. In Buenos Aires, Trump and Xi agreed to hold off on new tariffs and agreed to talk for 90 days.
About half the recent stock market sell off is because of the trade conflict, said Ethan Harris, head of global economic research at Bank of America Merrill Lynch. "Farmers have been upset for a while. It probably did hurt Republicans in the midterms. The trade war is starting to show some cost to the U.S. Whats' missing so far is because tariffs aren't really that big they haven't really begun to hit the U.S. consumer."
Economists have said the uncertainty of the 90-day period could result in some businesses holding off spending, until they see whether there's a deal by March 1, or if not, a wave of new tariffs.
Strategists do expect to ultimately see a positive outcome, whether it' s in three months or six months, because a victory on trade would be important to both sides. The talks were followed by reports Tuesday that China would make some purchases of U.S. soy beans and would roll back tariffs to an original 15 percent from 40 percent on autos imported from the U.S.