China: Breaking Report of Mnuchin Outreach

Published on September 12, 2018

US equity markets have popped on newswire reports that US Treasury Secretary Steven Mnuchin has reached out to Beijing to suggest a new round of trade discussions with Beijing — this time, as opposed to August 22-23, at a high ministerial level that would include his negotiating counterpart, Vice-Premier Liu He.

The report implies the timing of this outreach is intended to leverage the looming, latest round of tariff escalation, with the suggestion China may be able to stave off — at least for now — the threatened next round of 25% tariffs on $200 billion of US imports from China that is sitting on President Trump’s desk, awaiting his sign off.

*** In our report on Monday we stated that as of Sunday, Beijing time, there had been no communication or outreach between Washington and Beijing. That information was from the highest policy making levels in Beijing, fully and imminently expecting the $200 billion tariff onslaught from President Trump.

*** We do not have any confirmation one way or another on Mnuchin’s alleged outreach since then — that would have come perhaps yesterday from what we know and what this article implies. We suspect if it is accurate, Mnuchin, or the implied UST sources reportedly behind the article, would not, given the disparate leanings within various branches of the administration on China and trade, be free-lancing on an issue as important as this without the President’s blessing.

*** Whether this reported outreach might in any way be related to the deepening challenges facing the GOP in the upcoming November midterm elections, or a strategy crafted in advance, can only be a matter of speculation, but our first priority will be to verify if there has indeed been such an outreach or not, and if so, what the response from Beijing will be. While it is clear that Beijing would welcome steps toward the de-escalation of trade wars with the United States, we would note that there has been a deepening sense of caution in Beijing in entering negotiations with US counterparts without assurances that Trump, whose own leanings continue to lean towards a longer term, hard line policy vis a vis China, would commit to supporting the negotiations himself.

We will get back to you as we get details.

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