Citi: It's 'plausible' that the US and China could drop tariffs this year

  • Citi says the U.S. and China suspending tariffs is a 'plausible' surprise for 2019.
  • The U.S. bank says in a note that both sides are facing pressures that could lead to a better-than expected outcome.
  • It comes after China reported its worst annual GDP growth since 1990.
A US cargo ship seen at the Yangshan Deep-Water Port, an automated cargo wharf, in Shanghai on Apr. 9, 2018.
Johannes Eisele | AFP | Getty Images
A US cargo ship seen at the Yangshan Deep-Water Port, an automated cargo wharf, in Shanghai on Apr. 9, 2018.

Citi analysts are focusing on "plausible" economic surprises in Asia in 2019, with a better-than-expected trade deal between China and the United States topping the list.

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.

'Black swans'

Trump on Saturday told reporters there has been progress toward a deal, but he called reports he was considering lifting tariffs on China "false."

China, for its part, on Monday reported its slowest annual GDP growth since 1990 with an expansion of 6.6 percent in 2018.

The country has been taking steps to boost growth amid a weakening outlook, such as encouraging banks to make more loans and easing restrictions on non-traditional forms of lending known broadly as "shadow banking."

Economists say authorities are likely to make tax cuts a key tool this year, just as Beijing is warning about potential shocks to its system. Chinese President Xi Jinping on Monday said China must be on guard for "black swans" and "gray rhinos," referring, respectively, to events that are impossible to predict and those that are plainly seen yet overlooked.

Citi's note also contained six additional "plausible" scenarios for this year, ranging from more Asian central banks cutting interest rates to production relocations having a larger-than-expected effect on economic growth in certain Southeast Asian countries.