Is international trade back on track after the US and China agreed on a trade framework?

An agreement appears to have been reached for a new thawing of US-China trade relations, despite tensions between the two biggest economies in the world having been simmering for weeks

Trade tensions between the United States and China seem to be decreasing, and later this week, the two biggest economies in the world may agree on a comprehensive trade agreement.

A trade framework reportedly agreed upon by the two superpowers' negotiators could be approved when US President Donald Trump meets with Chinese President Xi Jinping.

Beijing's tightening of export controls on rare earth materials (which are necessary for many high tech products, such as self-driving cars and artificial intelligence) prompted Trump to threaten to impose 100 percent tariffs on imports from China. This raised the possibility of a return to the two nations' tariff increases following Liberation Day, which threatened to impede international trade.

However, following a breakthrough in negotiations, both the Chinese Ministry of Commerce and US Trade Secretary Scott Bessent have stated that the "framework" of a trade deal has been reached, suggesting that US-China trade will soon resume its direction.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, stated, "Global markets are starting the week in an optimistic manner as geopolitics takes center stage, with trade optimism giving investors something to cheer about."

When the US-China trade framework was announced, Asian markets reacted favorably. On October 27, the Nikkei 225 was up nearly 2.5 percent, while the Hang Seng index increased by more than 1 percent.

Mining stocks were the main driver of the FTSE 100's 0 point 1 percent gain on October 27. Russ Mould, investment director at AJ Bell, stated that "the mining sector moved higher, bar the precious metal contingent who were hit by lower gold prices."

As hope for the US economy increased, the SandP 500 rose 1.2 percent.

A comprehensive trade agreement has not yet been reached, despite the fact that the most recent round of negotiations has brought the two superpowers back from the verge of unreasonably high trade barriers.

In US-China trade talks, what has been agreed?

On the morning of October 27, China's Ministry of Commerce announced that preliminary agreement had been reached on a number of issues, including extended tariff pauses, fentanyl, agricultural trade, export controls, and shipping levies.

According to Bessent, the two nations have been in talks to reach a final agreement on TikTok's ownership in the US and for China to resume buying American soybeans.

According to Bessent, "I would characterize the negotiations as constructive, far-reaching, in-depth, and giving us the ability to move forward and set the way for the leaders meeting in a very positive framework."

On October 10, Trump threatened to impose 100 percent tariffs on China in response to Chinese plans to limit rare earth exports starting on December 1. This sparked the most recent round of tariff unrest.

These remarks were swiftly retracted by Trump, who wrote, "Don't worry about China, it will all be fine!" on his Truth Social platform on October 12.

Some analysts believe that Beijing's decision to limit rare earth exports is a reflection of Trump's own negotiating tactics, much as Trump has tried to stop companies like Nvidia from shipping AI chips to China.

Nancy Tengler, the CEO and chief investment officer of Laffer Tengler Investments, stated, "We had stated that Xi was participating in Art of the Deal Chinese Style." According to a Wall Street Journal article published last week, Xi has specifically modified his negotiating approach to go against Trump's standard tactic of pressuring allies into making concessions by threatening economic sanctions.

Tengler said, "Over the weekend, negotiators reached agreements on a number of controversial issues, which may set the stage for Art of the Deal and Art of the Deal China."

The US and China will have a comprehensive trade agreement.

The agreement made this week must be ratified at the next meeting between Trump and Xi, which the White House says will take place on Thursday, October 30, though Beijing has not yet confirmed this date.

Jay Woods, chief market strategist at Freedom Capital Markets, stated that "good faith negotiations are paramount given the heated rhetoric that has gone back and forth on social media and the ongoing threat of an escalation to the trade war between the two nations when it comes to rare earths and agriculture."

When it comes to a stable trade agreement, the US and China are still at a considerable distance.

Jim Reid, global head of macro research and thematic strategy at Deutsche Bank, stated that the meeting's details should provide a better understanding of whether the US-China trade relations are truly stabilizing or merely reverting to the precarious trade truce that existed prior to the rhetoric escalating earlier this month.

For you, what would a trade agreement between the US and China mean?

The global economy is significantly impacted by the trade tension between the US and China, the two biggest economies in the world.

With the favorable effects on the global economy and corporate profits, any thawing of relationships is generally beneficial for the stock market, especially risk assets.

The trade war between the two countries was the reason for a significant sell-off at the end of 2018, and aside from April's Liberation Day, Woods said the current dispute has caused the most intraday volatility.

Additionally, oil prices have increased due to renewed optimism regarding US-China trade, which may eventually result in higher energy prices.