U.S. officials are also not clear on whether a trade deal would lead to a further delay in the proposed tariff increase or permanent cancellation of the increases that were planned for October 15 and December 15. This is an important distinction for financial markets and the Fed.
The Trump administration may not be willing to cancel future tariffs yet, and it seems unlikely that the U.S. would be willing to reverse existing tariff increases, given the limited scope of the phase one deal. At the same time, the lagged effects of the summer tariff increases will still feed through to hurt the global economy in 2020.
The U.S. is also fighting trade battles elsewhere, including against the WTO, as the U.S. believes that the WTO is too lenient on China. The U.S. is blocking appointees to the WTO appellate court, which will no longer be able to operate after December 10 once the quorum drops below three. Without appointments, the court cannot operate. And if that happens, trade experts believe that there will be a shift back to pre-1995 General Agreement on Tariffs and Trade (GATT) rules. Such a sequence is not good for world trade, as the GATT rules are less rule-based and more prone to manipulation by large countries. World trade growth and open economies could be big losers in the coming years. The collapse of the WTO appellate court could also send a bad signal to financial markets.