China trade truce before US election may falter afterward

The stars are aligned for a "skinny" trade deal between the U.S. and China, thanks to slowing growth in both nations and a looming election in the U.S. that will test Washington's resolve on billions of dollars in tariffs that pinch businesses and consumers, Bank of America economists predict.

How long beyond November 2020 a cease-fire will last is far less certain.

"It's natural that there are serious negotiations going on right now," Ethan Harris, chief global economist at the Charlotte, N.C.-based lender, told reporters on Tuesday. "The Trump administration has a strong incentive to do some kind of deal."

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While the president himself stands by his duties on Chinese imports, reiterating Tuesday his position that Beijing wants a deal more than he does, business leaders have chafed under the duties, which have driven up supply costs and undercut the benefits of large tax cuts in late 2017.

Additionally, levies that Washington has threatened on more Chinese imports later this month would hit mostly consumer goods, making them politically risky, Harris said. The effects are compounded by November elections in which Democrats are seeking to oust President Trump from the White House while every seat in the House of Representatives and a wide swath of Senate posts will be up for grabs.

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"The trade war will have a cease-fire for the election year, but some kind of escalation after election year," Harris said. "If there's not a conclusive deal, the benefits are limited because risks are still hanging out there in the environment."

Trade, particularly with China, will likely remain a hot-button issue even if Trump;'s re-election bid fails, Harris noted.

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For now, any preliminary trade deal will likely have to include more crop purchases by China, which slashed them in retaliation for Trump's tariffs, and an agreement by the Trump administration to table proposed duties that haven't yet been imposed, Harris said.

"The Trump administration and the Chinese understand that getting anything done is better than nothing at all," he said. "Rather than think of this as a deal that's not happening at all, it will be something that's very symbolic."