Will the US and China ever get a trade deal? Investors turn skeptical

China’s economy is getting worse
CNN screenshot

When US and Chinese negotiators reached a preliminary agreement to ease trade tensions last month, investors were ecstatic.

Yes, some details still needed to be hammered out. But the consensus was that a “phase one” deal would soon be finalized. All eyes were on the APEC summit in Chile on November 16 and 17, which was tapped for a potential signing.

It’s now November 21. There’s no deal in place. The APEC summit was canceled amid civil unrest in Chile — but failure to reach a deal has been about more than just finding a venue.

“It is now nearly six weeks since that trade breakthrough and rather than the market simply wondering when it will be signed, there has to be a small but growing risk as to whether it gets signed at all,” said Deutsche Bank’s Jim Reid.

He has a point. Reports abound that there’s still distance between the United States and China on key issues such as agricultural purchases and tariff rollbacks, and that negotiators could be at an impasse.

Another twist: Congress has passed a bill seen as supportive of Hong Kong’s pro-democracy protesters, stoking China’s ire. The measure now heads to President Donald Trump’s desk. If he signs it, Beijing has indicated that the trade deal could be affected.

“If the US side goes its own way, China will take effective measures to resolutely counteract it, and all consequences must be fully borne by the US,” read an editorial in the state-owned People’s Daily.

China’s top trade negotiator, Lie He, reportedly tried to tamp down anxiety on Thursday with remarks that he remained “cautiously optimistic” about an agreement.

But that hasn’t been enough for markets to entirely shake a sense of gloom. At this point, investors have priced in a deal of some sort. Any other outcome could deal a shock.

Remember: Another round of US tariffs on consumer goods from China is set to go into effect on December 15, smack dab in the middle of the holiday shopping season. The clock is ticking.

Capital Economics’ Neil Shearing expressed his skepticism this way: “Trade deals in the modern era are hard to do.”

His view: “Trade agreements necessarily require governments to make compromises that balance the competing interests of different groups,” he wrote in a blog post this week. “That’s become much harder in recent years because the complexities of the modern economy require deals to cover a much wider terrain.”