What's going on?
At the G20 summit of world leaders on Saturday, the US and China agreed to not further escalate their ongoing trade war… for now (tweet this).
What does this mean?
Both sides agreed to spend the next 90 days negotiating a trade deal. Last year, the US spent $376 billion more on goods from China than vice versa – which America’s using import taxes (a.k.a. tariffs) to try to even out.
China’s reportedly agreed to buy more of the US’s farm produce (like soybeans), energy, and industrial products to reduce the gap between the amount the two countries spend on each other. And in return, the US has agreed not to hike its existing tariffs on $200 billion-worth of Chinese goods from 10% to 25%.
Why should I care?
For markets: Good news but don’t hold your breath.
A pause in tariff increases and a concentrated effort to reach an agreement should give markets a boost. The higher costs companies were expected to face in the new year will be pushed away (if not disappeared entirely), which should mean more profit than previously anticipated – and could result in higher economic growth in 2019 than the International Monetary Fund has predicted. However, if there’s no deal agreed upon after 90 days, the US has said it’ll press ahead with tariff increases in the new year – and tax the $257 billion of Chinese imports that haven’t been hit yet, including consumer items like laptops and cell phones.
For you personally: Trading blows gets expensive.
So far, products bought directly by consumers have – for the most part – been spared from previous rounds of tariffs. Although industrial companies’ higher costs may have fed through to the rest of the economy, things like already-expensive iPhones, playing cards, and kids’ tricycles could get more pricey if further tariffs are enacted. The most likely impact is that consumers truncate their spending, still buying the essentials but fewer optional treats.