President Donald Trump and EuropeanCommission President Jean-Claude Juncker have agreed to suspend newtariffs while negotiating over trade. This surprise trade trucewith the European Union (EU) has analysts asking, “What does thismean for the trade war with China?”So far there are two verydifferent answers.One camp sees the deal as a deliberate attempt tomend fences with allies as the U.S. girds for a protracted disputewith China. “De-escalating the U.S.-EU trade track, and possiblythe NAFTA trade track in the period ahead, does not mean theU.S.-China trade track is also ripe for an off-ramp,” Krishna Guha,vice chairman at Evercore ISI, wrote in a note. “This is possible,but it is at least as likely that the U.S. is reducing tradetension with its allies in order to improve its leverage andstaying power in what we continue to fear will be a prolonged trialof strength with Beijing." Guha says Evercore ISI's base case isthere'll be no U.S.-China deal before 2019.The U.S. truce withEurope is likely to embolden Trump to increase his pressure onChina, said Chua Hak Bin, a senior economist at Maybank Kim EngResearch Pte in Singapore. “Trump will likely blow his trumpet andargue that his trade war threats are working,” Chua said. “Theprobability of a full-blown U.S.-China trade war has ironicallyincreased with the U.S.-EU trade deal.”The other view: Trump'sapparent deal with Europe shows how bargains can be struck.“Thewillingness of Trump to agree to a trade truce with the EU is apositive sign that a similar arrangement could be reached during adiscussion with Xi Jinping,” said Andy Rothman, a former U.S.diplomat in Beijing who's now an investment strategist at MatthewsAsia, a money manager. “I also think that Xi is better placed tomake more concessions than Juncker was able to offer, and thusobtain more concrete results from Trump.” That's because of Xi'sposition as the sole leader of his country and his pledge to makeChina's economy increasingly market-oriented, said Rothman.Onething all analysts can probably agree on—don't count your tradetruce chickens just yet.“We should be cautious,” said Deborah Elms,executive director of the Asian Trade Centre, a consulting firm inSingapore. “The EU got promises to start talking. China alsoreceived similar treatment. After two dialogue sessions, Chinaended up facing $50 billion in tariffs with potentially more on theway.”Trump has already imposed 25 percent tariffs on $34 billion ofimported Chinese goods—triggering retaliation from Beijing—withanother $16 billion likely to be targeted soon. At the same time,the Office of U.S. Trade Representative has identified anadditional $200 billion of Chinese goods slated for a 10 percentduty, and Trump has threatened to target as much as $500 billionworth—roughly the value of China's annual goods exports to theU.S.While there appears to be little sign of negotiation betweenthe U.S. and China, the situation remains fluid. Trump hassurprised before by pushing ahead with tariffs even after TreasurySecretary Steven Mnuchin in May declared the trade war was “ onhold.” Trump also lifted a ban on American firms selling productsto Chinese telecommunications equipment maker ZTE Corp. and optedfor a softer tack on new rules scrutinizing Chineseinvestment.While Chinese officials remain open to a deal, they areunsure about trusting their American counterparts, Bloomberg Newshas reported.

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