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Is Trump about to make trade peace with China?

In a move that may have surprised many people, the US has managed to work out a new trade deal agreement with Canada.

Trump got rid of NAFTA, but this new deal is essentially the same with a few modifications and it will now be called the United States-Mexico-Canada Agreement. There’s a slight chance it could fall at a hurdle during the legal process.

Markets clearly liked the deal with the S&P 500 Index finishing up 0.36%. The ASX is also expected to have a good day. It shows that Trump can work out a globalisation trade deal, even if it’s quite similar to the old one. As long as it makes him look like he ‘won’.

However, the bigger question is: will this herald a deal with China? Trump has shown he is willing to do a deal and I’m sure China will have noticed.

Australia would be one of the main beneficiaries of a Chinese trade deal because Australia is so economically dependent on the Asian giant. The rest of the world thinks the same, which is why the Australian share market is hurt when something happens to China.

I expect today will be a positive day for broad index funds like Vanguard MSCI Index International Shares ETF (ASX: VGS) and Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE).

But, a trade deal isn’t likely to come quickly. The US and China have much more on the line due to the size of the respective economies, the tariffs and what’s at stake.

Foolish takeaway

The trade deal in North America is yet another example of how potential share market risks usually work themselves out. If a US-China trade deal does occur then I expect Asian ETFs such as UBS IQ Asia ETF (ASX: UBP) to get a sizeable boost.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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