US-China trade talks ramp up as China's VP arrives in Washington

A meeting to sign a US-China trade deal could be announced on Thursday as US President Donald Trump prepares to meet Chinese Vice Premier Liu He at the White House.

Talks continued in Washington overnight where Liu met US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

It is expected that with the progress made this week, a final trade deal will be reached in the following days so Trump and Chinese leader Xi Jinping can sign it.

Drafts of the agreement revealed that Beijing would have until 2025 to meet commitments on commodity purchases and allow American companies to wholly own firms in China, Bloomberg reported.

On Wednesday morning, Trump’s top economic advisor Larry Kudlow, told reporters at an event in Washington that there was progress being made in the trade talks but the deal might not be so close.

A meeting between Trump and Xi could be announced as early as Thursday, sources told Bloomberg.

One of the issues still unresolved in the trade conflict is what will happen to the existing tariffs on Chinese goods once a deal is signed. Beijing wants them erased completely but Trump stated he would maintain at least some of the levies on $250bn worth of the Asian imports.

One possible solution that is being discussed by officials would involve a gradual reduction of tariffs after the pact is sealed, based on certain benchmarks for compliance of what China agreed to do and a set timeline that the levies would not remain forever.

Nevertheless, this could prove tricky, since the lowering of tariffs could be subject to interpretation, relighting the flames between the two powers.

The major US indices closed higher overnight on the back of optimism around the talks, with the S&P 500 taking it winning streak to five days.

Yields on US Treasuries began to rise on Wednesday as the dollar softened across the board after weaker than expected ADP jobs data, but Thursday's meeting should provide a further boost to equities and see higher US Treasury yields, said analysts at Rabobank, though they saw a continued sticking point in China's wish for all tariffs imposed over the past 12 months to be removed but US's wish to retain some over the longer term.

Rabobank noted that China significant pledge to reduce the trade deficit to zero by 2024 coincides with the end of a potential Trump second term, "which would imply that the lead up to Presidential elections in 2020 will come against a backdrop of a significant ramping-up of Chinese purchases of US goods in an effort to close the gap. That this would present the President with a notable political boost as he seeks re-election for a second term in office is perhaps an understatement on significant proportions."