The U.S. bank said in a note released Monday titled "Plausible Macro Surprises to Watch in 2019" that recent positive statements by both sides surrounding the dispute could mean averting an increase in tariffs is increasingly likely, though an even better outcome is not out of the question.
"A significant U.S.-China breakthrough in trade talks — suspension of tariffs and more conciliatory tone than expected — would be a plausible macro surprise," Citi said.
Among reasons it sees driving the two sides reaching a possible rosy deal are China's deteriorating trade data and domestic pressures on U.S. President Donald Trump, including his sensitivity to the performance of U.S. stocks.
But also a factor, Citi said, is the U.S. possibly shifting to a strategy of targeting what it sees as China's threatening technological ascendance through tactics such as investment restrictions and legal maneuvers rather than tariffs.
Recent positive news on the trade front has included the U.S. and China agreeing to a 90-day truce from early December, while negotiations that took place earlier this month are to be followed by another round soon.