- The US and China have been engaged in a trade war since July, with tariffs flying back and forth.
- But more recently, President Donald Trump has played up the possibility of a trade deal with China.
- Chinese and US officials have restarted talks, and protectionist members of the Trump administration are being sidelined.
- Analysts say these are goods signs that the two sides could strike a deal.
- Trump and Chinese President Xi Jinping are scheduled to meet at the G20 summit at the end of November.
After waging an increasingly escalating trade war against China for months, it appears that President Donald Trump may be ready to back down on his hardline stance – just in time for a meeting with Chinese President Xi Jinping.
Trump and his administration have taken a softer tone toward China in recent weeks, leading up to the meeting at the G20 summit in Argentina at the end of November.
Talks between the US and China have restarted, and some of the more hawkish members of Trump’s economic team have been effectively sidelined.
Analysts say the shift shows a possible willingness to strike a deal with Beijing.
Talks thaw trade tiff
It’s been over four months since the US and China began to impose tariffs on each other’s goods. So far, $US360 billion worth of goods has now been subject to duties.
But after months of tough talk, multiple members of the Trump administration – even the president himself – have started to suggest a possible deal.
The most significant sign that the US and China may actually come to some agreement came late Wednesday, after reports surfaced that Beijing sent a letter to the Trump administration outlining possible concessions.
The letter comes as Chinese officials restarted trade discussions with their counterparts in Washington. Trump and Xi held a formal phone call on November 1 – the first substantial contact between the two leaders in weeks.
And the internal dynamics within Trump’s economic team also seem to favour progress on a deal.
Peter Navarro – Trump’s uber-protectionist trade adviser who also is the author of “Death By China” – was reportedly sidelined for the upcoming talks between Xi and Trump following his inflammatory comments attacking Wall Street for allegedly meddling in the US-China discussions.
“There are so many disputes between the two countries that it will take many months to iron out a final deal, but last night’s reports – and the apparent demotion of Navarro – are positive developments, in our opinion,” Greg Valliere, chief global strategist at Horizon Investment, said Thursday.
Stumbles inspire talks?
The administration hasn’t outlined the reason behind the sudden shift in Trump’s trade strategy, saying only that the president has always wanted a deal. But political and economic hits of late may point to the cause.
The GOP was thumped in US House of Representatives elections in what was seen, at least in part, as a repudiation of Trump. While some observers thought that the loss may light a fire under the president to push the trade war to the next level, it may have had the opposite effect.
It’s unclear just how much of an effect the trade war had on key races – according to The Wall Street Journal, the GOP won 10 of 19 competitive House races with soybean production of over 2 million bushels – but exit polling showed that 29% of voters thought the tariffs hurt their local economy, while 37% said it had no impact.
Some analysts also observed that the solid economy helped blunt at least some of the Democrats’ “blue wave,” and any long-term economic damage from a drawn-out trade war could undermine Trump’s strongest argument going into 2020.
Several worrying economic sings could also have pushed Trump toward a potential deal:
- Hard data shows that a slowing of business investment appears to be at least in part tied to the trade war, as companies have complained that the uncertainty over trade policy and the cost of imports has caused them to delay major investments.
- On the anecdotal side, the cacophony of US businesses complaining about pain or potential pain from tariffs has hit a fever pitch.
- And farmers in the Midwest are scrambling as shipments of soybeans to China during the current harvest season have collapsed over 95% compared to 2017. Soybean exports to China accounted for roughly 10%, or $US14 billion, of all US agricultural exports in 2017.
A détente is not a done deal
However, Michael Zezas, head of US public-policy research at Morgan Stanley, cautioned Thursday that further escalation of the trade conflict is still the most likely scenario coming out of the G20 meeting.
“To reiterate: The increasingly constructive tone is likely masking ongoing, fundamental disagreements beneath the surface,” Zezas wrote. “Hence, our base case remains that escalation of trade tensions will continue.”
To Zezas’ point, the Trump administration has been going after China – just not through tariffs – over the past few weeks. For example, the Department of Justice has brought charges against a slew of Chinese firms for alleged economic espionage over the past month and launched a task force to combat those practices.
Trump’s unpredictability in international settings also has the chance to throw a wrench into any good will. As noted by Chris Krueger, a strategist at Cowen Washington Research Group, Trump does not have the best track record when it comes to international meetings.
“It is somewhat surreal to state, but this meeting will be hugely influenced by Trump’s mood and his previous performances at foreign multilateral summits (G7, NATO, Paris trip last week) have poor records of dealmaking (quite the opposite),” Krueger said Thursday.
There is a lot of room for the trade war to get worse.
Trump has threatened to hit the remaining $US257 billion worth of Chinese goods not caught up in the conflict with tariffs – and the 10% tariff on the $US200 billion worth of Chinese goods currently hit with restrictions is set to increase to 25% come January 1.