President Donald Trump roiled markets overnight in stating to a reporter it is “highly unlikely” he will refrain from raising tariffs as currently threatened on an existing list of $200 billion of imports from China from 10% to 25% – unless, that is, Beijing were to open its markets to US competition.
Those comments are especially controversial coming on the eve of his long-awaited summit with China’s President Xi Jinping on December 1 in Buenos Aires, implying Beijing’s goal post and reward for any potential de-escalation from the meeting has now been moved to simply averting the final tranche of tariffs on approximately $267 of imports that remain untouched by the current retaliatory regime.
*** Sources close to the President are unsure at this moment whether Trump’s comments present a fait accompli of sorts to Beijing, or a feint from the ultimate decision maker in positioning for tough negotiations – and lowering expectations for markets. But we would be surprised if the summit were to collapse into a renewed round of immediate escalation and recriminations. ***
*** Indeed, from what we understand China will soon publish a revised “negative list” for industries that are restricted or prohibited foreign investor access for nationwide roll-out. Chinese sources say the US side has been told that the latest revision is the most comprehensive trade settlement that was personally approved by President Xi himself. To that point, the caveat “unless China were to open its markets” seems largely to have been lost in the summaries of the interview with Trump and his threats to proceed with the bump up of existing levies from 10% to 25%. ***
*** Whether those promises and measures will still be enough to avert a potential partial escalation or not is unclear, but we have also learned that the bilateral trade teams will engage in further intensive trade talks in Buenos Aires the day before Xi arrives. And perhaps most importantly, Vice Premier Liu He has been preparing for a full day of last minute face-to-face talks with Treasury Secretary Steve Mnuchin on November 30, the day before their respective leaders meet on December 1. ***
When all is said, it is hard to tell if negotiations in the end produce a moratorium for a quarter or so on the escalation of current tariffs from 10% to 25%, in addition to a pause on the threats of tariffs on the final tranche of $267 billion of imports (see SGH 11/8/18, “China: G20 Summit and Politburo Concerns”).
But we continue to pick up a strong desire by both sides for a successful outcome to the summit, even behind the latest tough talk from Trump and a White House that considers the strategic roll back of China’s influence a fundamental mission of its tenure in office.