US-China trade tension eased but not yet resolved: Fitch

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A preliminary trade deal reached between the United States and China has offset much of the damage done to global trade activity prospects, but tensions remain high and renewed escalation still poses risks, Fitch Ratings said in a statement on Tuesday.

Fitch noted that neither side of the agreement have provided details on the deal, “which makes it difficult to determine how viable it will be to implement.”

On Friday, China and the US agreed a phase one deal, in which both countries will cut tariffs and China will purchase more American agricultural products. The nine-chapter text, which covers technology transfer, financial services, and dispute settlement, will undergo legal and translation review before it can be ratified, Chinese officials said.

“The trade war nonetheless appears far from over, even with a Phase One deal,” the ratings agency said in a statement. “Fitch believes that underlying strategic tensions will remain between the US and China, particularly in fields such as technology, which will pose a major obstacle to full resolution of the trade war.”

Fitch said that parts of the plan that have been publicly reported, such as the US Trade Representative’s statement that China will increase its imports of US goods and services by at least $200 billion in total over 2020-2021, seem unrealistic.

“Official statements indicate that the effective US tariff rate on imports from China will fall to around 16 percent under the plan, compared with earlier plans that would have seen it rise to around 25 percent,” Fitch said in its statement about the deal.

“This represents a significant shift compared with our earlier assumption that the full set of tariff increases announced by the US in late August would be implemented.”

The ratings agency now expects China’s economy to grow by close to 6 percent in 2020, compared with an earlier forecast of 5.7 percent.

“This will, in turn, support the outlook for the global economy, helping world GDP growth to stabilize in 2020 after falling to 2.6 percent this year from 3.2 percent in 2018,” Fitch said.

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