Extending the U.S. – China Trade Deadline

February 25, 2019

US-China trade expiration is getting an extension until after Trump and Xi meet later in March. Chinese vice premier Liu He has been in Washington for negotiations all week and into the weekend. Both sides seem eager to do something constructive, but it looks like nothing will be finalized until later in March. This stops the March 1st trigger for U.S. tariffs on $200 billion of Chinese goods to increase to 25% from the current 10%.

Financial markets were optimistic for a deal in some form with the S&P 500 Index +0.62% last week, its fourth consecutive weekly increase. Crude oil was also up for the week, posting a +3.0% gain on trade optimism, lower global production, and a lower U.S. rig count for the week.

The minutes from the FOMC’s January meeting, which were released on Wednesday, indicated that the patient stance would remain, but that the stance could change depending on economic growth. The Fed currently views the U.S. economy as “solid” and that even as growth could slow in 2019 and 2020, accompanied by a slight increase in unemployment, that it doesn’t see anything dire on the horizon. Likewise, it doesn’t see inflation as a imminent threat. Lastly, it viewed the unwinding of the balance sheet as not having a significant negative impact on the market and economy, but wanted to slow the unwind as bank reserves are approaching a level the Fed deems appropriate.

Financial Market Update

Dissecting Headlines: Forced Technology Transfer

One major issue being debated in the U.S.—China trade negotiations is forced technology transfer of intellectual property from U.S.-based multinational companies operating in, or seeking entry to, the Chinese market. China has routinely forced foreign companies to transfer technology to local Chinese companies as a condition to allow them market access in China. The Chinese government has then failed to protect that intellectual property.
As the trade negotiations look to be extended beyond the March 1st deadline, the limiting of forced technology transfer and protection of intellectual property of U.S. firms operating in China may be a sticking point to ultimately resolving the current trade conflict.

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