Analysts are widely skeptical of the US-China trade truce - and some warn that more tariffs are coming within a year
- Even after the US and China agreed to a trade truce, Capital Economics expects the US to escalate tariffs by 2020.
- The S&P 500 could see corrections in the near future from current or further tariffs, said analysts from Capital Economics, Bank of America, and Morgan Stanley.
- In addition, the prevailing tariffs have hurt the global economy and can't be ignored, according to Piper Jaffray.
- Read more on Markets Insider.
Wall Street analysts and economists are skeptical that the truce the US and China reached over the weekend will lead to lasting relief from the trade war.
Markets rallied Monday after President Donald Trump and Chinese President Xi Jinping agreed to a trade truce at the G20 summit in Osaka, Japan over the weekend. The S&P 500 climbed to a new intraday record, while safe-haven assets slipped.
But a number of analysts think the rally will be short lived, and that further tariffs could be coming.
"Our forecast remains that the US will go through with its threat of a 25% tariff on all Chinese imports by early 2020, and that China will in turn retaliate with a combination of additional tariffs and non-tariff measures," wrote Oliver Jones of Capital Economics in a note Monday.
Pauses on raising tariffs haven't led to much success in the past, Jones said. Last year at the G20 summit in Buenos Aires, Argentina, a trade truce only lasted about six months before the US went ahead with raising tariffs on $200 billion of Chinese imports to 25% from 10%.
While it's positive that the US and China have agreed to re-open negotiations, there is no proof that this will lead to a resolution. So far, no proposals have been able to address the concerns that both sides bring to the table, leading analysts to believe that further escalation of tariffs and retaliatory measures will be on the horizon at some point.
"The risk of talks falling apart, or another flare-up in tensions, could still rear its ugly head at some point in the future, blindsiding investors yet again," wrote Han Tan, market analyst at FXTM in a note Monday.
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In addition, the global economy is still dealing with the damage that the current tariffs have caused, wrote Craig Johnson of Piper Jaffray. The current round of tariffs will likely continue to drag down global growth, a negative going forward, especially if the "kick-the-can policy" continues, Johnson wrote.
It's clearer now that trade and tariff wars are not low-cost affairs, wrote John Stoltzfus, the chief investment strategist at Oppenheimer, in a Monday note.
To be sure, some industry watchers say that because of the damage inflicted on both economies by tariffs, this trade truce will be different.
"The need for Mr. Trump to sign a deal with China, given his deeply underwater polling in key 2020 states, means that an agreement over the summer is very likely," wrote Ian Shepherdson, chief economist at Pantheon Economics, in a note Monday.
Still, some analysts expect that the market highs seen from the current trade truce will reverse in the next few months. Morgan Stanley, led by chief US equity strategist Mike Wilson has maintained its view that there will be a 10% correction in the third quarter. Analysts at Bank of America think that while a true trade deal could send the S&P 500 over 3,000, additional tariffs would drag the S&P 500 down more than 5%.
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