US and China are ‘getting close’ to a trade deal, says US adviser

The United States and China are getting close to a trade agreement, White House economic adviser Larry Kudlow has said, citing what he called very constructive talks with Beijing about ending a 16-month trade war.

Kudlow said on Thursday negotiators for the world’s two largest economies were in close touch via telephone but he gave no further details on the timing of a possible deal.

“We’re getting close,” he told an event at the Council on Foreign Relations in Washington. “The mood music is pretty good, and that has not always been so in these things.”

The US and China have been locked in successive waves of tit-for-tat tariffs that have roiled financial markets and threaten to drag growth in the global economy to its lowest rate since the 2007-2008 financial crisis.

“We are coming down to the short strokes,” Kudlow said, adding that US and Chinese negotiators “are in communication every single day right now.”

Shares in Asia bounced upward on the positive comments from Kudlow on Friday morning after the S&P 500 finished Thursday on a record high in New York.

However, analysts said investor sentiment remained fragile after weak data from China reinforced concerns about the global economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.67 percent, while Japan’s Nikkei added 0.76 percent and Australian shares gained 0.8 percent.

Chinese blue-chip shares gained 0.06 percent shortly after the start of trade.

Shane Oliver, chief economist at AMP Capital in Sydney, likened the market’s reaction to positive trade news to being in a relationship with an alcoholic, driven by entrenched hopes for recovery.

“Markets want to believe that there will be some sort of resolution to this issue, some sort of lasting truce at least, even though the experience of the last 18 months doesn’t give a lot of cause for comfort,” he said.

Investors are anxiously awaiting an agreement to end the uncertainty that has slowed business investment around the globe. A deal had appeared likely in May, but those prospects were dashed after US negotiators said China backed away from the text of a draft agreement.

Kudlow’s comments could ease market concerns that flared again this week amid reports that the trade talks had hit a snag over how and when to reduce tariffs, and what level of agricultural purchases could be expected from China.

Markets also soured after US President Donald Trump said on Tuesday he could impose substantial new tariffs on China if no deal was reached.

Kudlow told the audience he had just come from a meeting of the top Trump administration trade officials and was more optimistic.

“It’s not done yet, but there has been very good progress and the talks have been very constructive,” he told the event.

He also opened the door to the possibility that Trump and Chinese President Xi Jinping would not need to meet in person to clinch a deal.

Trump had hoped to sign the “phase one” agreement with China on the sidelines of the Asia-Pacific Economic Cooperation summit in Chile this month, but that possibility disappeared after Chile withdrew from hosting the event.

Kudlow said the White House had hoped to stick to that general timetable. He joked that his preference was for the deal to be signed in his office on the second floor of the White House.

“I don’t like to travel,” he quipped.