2 Reasons a Full U.S.-China Trade Deal Has a Long Way to Go

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Investors have bought up stocks to start 2020, partly on the basis of optimism on a full trade deal between the U.S. and China. But the U.S. Department of Justice's recent indictment of Chinese hackers of U.S. citizens' information raises two key issues that policy experts say stand in the way of a comprehensive deal. 

The S&P 500 is up more than 4% to start 2020, after a 27% run in 2019, as investors see reaccelerating economic growth ahead, aided by the belief that a full trade deal is in the cards. 

President Trump and Chinese leader Xi Jinping signed a phase one trade deal on January 15, which included a reduction in U.s. tariffs on Chinese imports to 7.5% from 15%. China then reduced tariffs on $75 billion worth of U.S. goods. 

But a full deal, policy experts and even the White House have said, hinges on an agreement on intellectual property guidelines. And according to one expert, the issue of espionage needs some ironing out as well. 

"That's absolutely true" that IP framework between the U.S. and China needs to become clearer, Craig Allen, president of the U.S.-China Business Council told TheStreet. The DOJ said the four Chinese hackers engaged in IP theft as well. 

Jonathan Ward, founder of Atlas Organization, a Washington D.C. based consultancy focused on Chinese policy, and Oxford PHD, recently told TheStreet "what you’re going to need is something that’s enforceable and their [China’s] intellectual property theft and [something that] takes retroactive actions on individuals that have engaged in it." 

Fortunately for the U.S., Allen says that Chinese government officials tell him that they are "insistent" on improving the protection of intellectual property rights for parties operating in China. 

But the second key issue is espionage. 

"There is a darker side simultaneously underway and that is continued espionage, continued hacking," Allen said. "The espionage component should also be addressed and I know that that is under discussion by the two governments.... It is much more difficult to have an honest conversation with the Chinese." Espionage, or a government's practice of spying on another country's activity, is inherently deceitful. 

U.S. stocks have risen for a number of reasons, one of which is the certainty investors have that central banks and governments around the globe will deploy monetary and fiscal stimulus should economies need it. But a trade deal between the two largest economies in the world would only be a boon to economic prospects and corporate profits. 

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