Yardeni: "Odds are" a potential U.S.-China trade deal might not hold

Investing.com - A prospective trade deal between the United States and China may not hold, meaning tensions could flare up once again, according to analysts at Yardeni Research.

President Donald Trump and Xi Jinping are anticipated to hold crucial face-to-face talks in South Korea on Thursday, with Trump suggesting the two could secure an agreement that would see the U.S. reduce its current elevated levies on China in exchange for a promise from Beijing to halt exports of fentanyl precursor chemicals.

Trump added that he may talk about Nvidia’s cutting-edge Blackwell AI chips with Xi. U.S. export restrictions keeping Nvidia from selling its most advanced AI processors to China have been one source of contention in trade negotiations.

In a note, the Yardeni analysts said the likelihood that Trump and Xi -- the leaders of the world’s two largest economies worth a combined $45 trillion -- will "[lay] down their weapons and [craft] an economic peace deal is an unambiguous good," adding that an agreement following months of tariff-fueled fighting would "stop putting the rest of the globe in the collateral damage zone."

However, they argued that it remains uncertain whether "posterity will judge the deal to have been worth all the financial chaos, geopolitical angst, and high opportunity costs it took to get to a point of accord."

"Yet another question is whether the prospective deal will even hold since it is more like a ceasefire than a peace treaty. Odds are, it won’t," they said.

An accord may also be reminiscent of Trump’s declaration in June that "our deal with China is done" and that the "relationship is excellent" between the two, the analysts said, noting that financial markets, since the announcement, have been grappling with "extreme trade war volatility." As a result, rather than being a "game-changing recalibration" of U.S.-China relations, an agreement could have a "deja vu feeling," they said.

"Whatever Trump and Xi agree to might just kick the can down the road," they said.

Investors may want to subsequently "check their euphoria" that has sent U.S. stocks to record closing highs in recent sessions, they added.