Trade war, day 188: Will Trump’s stock market obsession cut short negotiations?

Business & Technology

For over half a year, we have tracked the escalation of tariffs and the outlook for economic tension between the U.S. and China. The tariff escalation stopped on December 1, when Donald Trump and Xí Jìnpíng 习近平 agreed to a vague 90-day cease-fire. (Though tension over technology and national security is higher than ever, as best exemplified by the arrest of Huawei CFO Mèng Wǎnzhōu 孟晚舟 last month.)

  • One outcome of that 90-day period could be a breakdown in talks, and yet another escalation so that the entirety of trade in goods between the two countries are tariffed. Near the start of the 90-day period, as Trump was boasting of his credentials as “a tariff man,” this seemed to be the most likely outcome.
  • Another outcome could be, of course, a deal. This may be a small deal that amounts to mostly an extension of the talks — which Trump indicated was a possibility on the same day he dubbed himself “tariff man” — or it could be a more substantial deal.
  • But it is unlikely to be very substantial, from the perspective of American hardliners. Despite many months of the Trump administration hammering home that it is frustrated with how China treats foreign companies and their intellectual property, and how it subsidizes its own industries to create an uneven playing field, the sides remain far apart.
  • Negotiations over subsidies for the high-tech industries identified in the Made in China 2025 initiative are stuck. The Wall Street Journal says (paywall) that “the two sides remain divided” on this issue, “especially on…subsides to Chinese state-owned enterprises.” Back in May 2018, American negotiators had demanded their Chinese counterparts to “halt all” of these subsidies. China is still likely defending these subsidies as a non-negotiable part of its economic development model.

After three days of talks in Beijing (click here for a roundup of day 2), the U.S. Trade Representative-led delegation is returning to D.C. The USTR issued this statement:

On January 7-9, an official delegation from the United States led by Deputy U.S. Trade Representative Jeffrey Gerrish held meetings in Beijing with Chinese officials to discuss ways to achieve fairness, reciprocity, and balance in trade relations between our two countries. The officials also discussed the need for any agreement to provide for complete implementation subject to ongoing verification and effective enforcement. The meetings were held as part of the agreement reached by President Donald J. Trump and President Xi Jinping in Buenos Aires to engage in 90 days of negotiations with a view to achieving needed structural changes in China with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft of trade secrets for commercial purposes, services, and agriculture.  The talks also focused on China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services from the United States.  The United States officials conveyed President Trump’s commitment to addressing our persistent trade deficit and to resolving structural issues in order to improve trade between our countries.

The delegation will now report back to receive guidance on the next steps.

Note that subsidies for industry are not even mentioned in the statement. A Chinese statement is reportedly coming, though I doubt it will be any more detailed. The only area where anyone — in this case an anonymous source, to Reuters — said there was “good progress” was on the “purchase piece,” referring to increased Chinese purchases of American “soybeans, oil, liquefied natural gas and financial services.” Otherwise, the talks went “just fine,” according to Ted McKinney, U.S. undersecretary of agriculture for trade and foreign agricultural affairs.

I think it’s pretty clear that the two sides would need more than 50-odd days to work out all the remaining issues besides a bit of export promotion.

But a Bloomberg report today (porous paywall) also indicates that Trump seems to be readying himself to cut his losses at the end of this 90-day period, and take whatever deal comes to him, declaring victory in order to get a stock market boost. Some excerpts (emphasis added):

President Donald Trump is increasingly eager to strike a deal with China soon in an effort to perk up financial markets that have slumped…

Inside the White House, some key economic advisers are campaigning for a quick resolution to the trade conflict to help soothe battered markets. The S&P 500 Index has fallen about 8 percent since Trump and Chinese President Xi Jinping agreed on a 90-day truce at a Dec. 1 meeting in Argentina…

According to people familiar with the matter, Trump’s willingness to cut a deal with Beijing is driven in large part by his desire for markets to rally…

The president has focused on the stock market as it’s fallen over the past month as a gauge of success or failure, expressing frustration at the volatility, the people said…

But hawks have also been pressing the president to keep his focus on what they see as a long-term fight to address a vast list of Chinese trade abuses…

Advocates of a quick deal with Beijing, including Treasury Secretary Steven Mnuchin and White House economic adviser Larry Kudlow, have used the markets jitters as a cudgel to press their case, the people said.

Leland Miller, chief executive officer of China Beige Book, told Bloomberg: “There’s many in the White House who would like a longer fight, but for now the president has set the tone, and he says he wants a deal. So we’re on our way.”

Other trade-war-related links:

Previously in SupChina’s trade war coverage:

Trade war, day 187: Talks are extended to third day in Beijing