President Trump lifted Investors’ hopes once again Tuesday, with the commander in chief saying the U.S. is in the "final throes" of reaching a trade deal with China.
The statement came after U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer held yet another call with China’s top negotiator, Liu He.
“It's the interests of both sides to continue talking,” Mohamed El-Erian, Allianz’s chief economic adviser, told Yahoo Finance’s On the Move. “It's the interests of both sides to de-escalate for now, because in the short term neither of them wants a market disruption.”
So, why are things taking so long? “It's taking so long to get this mini deal for two reasons. One is that there's a lack of trust and lack of verification. So they're trying to figure out that once they agree, how are we going to actually get outcomes?” El-Erian says. “But secondly, and most importantly, the mini deal doesn't address some of the bigger issues. And these are going to come back.”
Even if a deal is reached, it would just be considered “phase one,” and El-Erian warns tensions could rise again.
“There are genuine grievances about the way China approaches trade. There are genuine grievances about the way China treats American and European companies. These things aren't going away,” he said. “So at best, we're going to get a mini deal that will see a truce through next year. But we are gonna see a re-escalation of trade tensions.”
Kenneth Underwood is a senior producer for Yahoo Finance.