Last week, the U.S. and China signed their Phase 1 trade agreement. This trade deal is a paradox – in my view, it is both inconsequential and yet extremely important.
It is inconsequential for two reasons: Tariffs will remain in place on a large amount of goods traded between the U.S. and China, and the deal doesn’t tackle many of the most important trade issues between the two countries. However, it is extremely important because of what it symbolizes: This trade deal suggests that friction between the two countries has peaked and is moving lower. The psychological effect is very significant, as it means that economic policy uncertainty has fallen. And, when companies believe economic policy is more certain, they typically spend more, especially on capex.