Stock market today: S&P 500 slumps as Trump tariff blitz triggers bloodbath
Investing.com - Risks remain that a framework trade agreement between the U.S. and China could still collapse, with a test of the pact due to come next week, according to analysts at Capital Economics.
Although a U.S.-China deal was inked last week, its full details have yet to be made public. The announced agreement was limited in scope, reversing trade barriers erected in recent months and helping soothe otherwise heightened tensions between the world’s two largest economies.
Still, the underlying causes of the countries’ frictions were not addressed, and ties remain more strained than they were at the beginning of 2025, the Capital Economics analysts said in a note.
"Given its shaky foundations, there is clearly a risk that the deal breaks down at some point," the analysts led by Julian Evans-Pritchard wrote.
The truce’s staying power may be tested on Wednesday, when a 90-day pause to U.S. President Donald Trump’s sweeping "reciprocal" tariffs is due to expire, they argued, noting that while China should not be directly impacted, Washington could use the threat of higher levies on other nations to indirectly target Beijing.
During the delay, the Trump administration has announced other preliminary deals with the United Kingdom (TADAWUL:4280) and Vietnam, both of which have elements that could affect China.
The U.K. agreement contains a provisions related to capping China’s presence in key supply chains, while Vietnam’s places a 40% tariff on "transshipments," or items that are sent from China to the U.S. through Vietnam.
Any other deals signed prior to the expiration of the reciprocal tariff deadline could contain similar conditions, the Capital Economics analysts said.
Trump is also not prevented from introducing new duties on rerouted Chinese goods, "even for countries where no deal is reached," they flagged. However, they noted that enforcing barriers on rerouting will be "tricky," especially across a broad range of goods.
"And even if the U.S. does succeed in clamping down on outright rerouting, we may simply see greater trade diversion instead," the analysts said.
Yet Beijing could still feel "aggrieved by efforts to crackdown on rerouting," having previously threatened countermeasures to these barriers, they said.
"[Chinese authorities now face] a dilemma over whether to grit their teeth and back down, or hit back and risk hurting ties with third countries and derailing the U.S.-China trade truce," the analysts said.