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'Mini-Deal' With China Expected Before End of Year, Bank of America Analysts Say

The U.S. and China appear poised to reach some sort of "mini-deal" before the end of the year, said Bank of America global economists Ethan Harris and Aditya Bhave in an Oct. 18 report. "In our view, both sides see the other as being in a weakened negotiating position," the analysts said. "The US can point to the bigger economic slowdown in China than in the US. China can point to President [Donald] Trump’s impeachment investigation and his desire to maintain a healthy economy going into the election. This argues for a relatively balanced 'win-win' deal."

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Possible components of such a deal would include increased Chinese purchases of agricultural products in exchange for canceling the last two sets of tariffs. "China is unlikely to agree to a deal that leaves the December tariffs looming," they said. China could also agree to intellectual property protection and improvements, but "it is hard to see major progress here outside of a comprehensive deal," Harris and Bhave said. China could also agree "to be more transparent about its currency intervention in exchange for removal of the 'currency manipulator' designation," they said.

There could also be "an awkward compromise on Huawei," in which "it remains on the 'entity list' but can continue to import many US components," they said. "It is hard to see China accepting any deal that allows this important company to be crippled. Also note that the US has a $10bn annual trade surplus with Huawei. A compromise would be a win-win: good for US trade and avoid crippling the company."