- The most anticipated dinner date if 2018 is nearly upon us.
- On Saturday evening, Donald Trump and Xi Jinping will meet to discuss trade.
- While Argentinian beef is rumoured to be on the menu, Nomura says a trade breakthrough will not be.
- It sees “no substantial policy commitments from China beyond perhaps increasing imports from the US”.
After much hype and speculation, the most anticipated dinner date for 2018 is now nearly upon us.
In just a few days time US President Donald Trump and Chinese President Xi Jinping will sit down to discuss the trade spat that has dominated financial markets for much of the past six months.
While Argentinian beef is rumoured to be on the menu, the prospect of a trade breakthrough in not, according to Normura’s North American economic team.
“We remain unconvinced that one bilateral meeting between the two leaders will result in a grand bargain that puts the US-China relationship back on track,” Nomura says.
“We believe that China wants a successful meeting. However, it is not obvious that China is willing to offer the type of concessions that Trump is demanding.”
So what will be the likely outcome from this high-stakes dinner date?
While no one knows for sure as to what path the conversation will take, Nomura says the odds are in favour of either an escalation or continuation of the status quo.
Here are the four outcomes the bank expects, along with the probability of each occurring:
1. The meeting produces no agreements and no follow-up negotiations with Trump threatening to impose tariffs on the remaining $267bn of imports from China (the scheduled increase of tariffs on the current $200bn from 10% to 25% on 1 January 2019 remains intact). 30%
2. The meeting concludes with an agreement to pursue further talks but falls short on specifics and policy commitments from either side. The US keeps in place plans to raise tariffs on the current $200bn from 10% to 25% on 1 January 2019, with the $267bn pending for further negotiation. 35%
3. The meeting generates an agreement on a broad framework for future talks; China offers more concrete pledges to increase imports and open its markets, and the US agrees to delay any additional tariffs including the scheduled increase of tariffs from 10% to 25% on the $200bn. 30%
4. The meeting generates a comprehensive agreement on a broad framework for future talks; in addition to specific announcements to increase imports and open its markets, China offers concrete pledges to reform its policies and regulations related to technology transfer and intellectual property protection; both sides immediately reduce some tariffs that have been imposed in recent months; and the US agrees to delay any additional tariffs including the scheduled increase of tariffs from 10% to 25% on the $200bn. 5%.
While all bar the first outcome will be welcomed by financial markets given persistent concerns the trade dispute could escalate, Nomura says the most likely scenario will be for China to loosely pledge to work towards appeasing US demands, as it has done in the past.
“Our baseline scenario is no substantial policy commitments from China beyond perhaps increasing imports from the US,” it says.
“We are highly skeptical that China will provide concrete, specific commitments on its policies and regulations related to technology transfer, intellectual property and innovation.”
Trump and Xi are set to dine together on Saturday evening in Buenos Aires, meaning markets won’t get the opportunity to react until Asian markets reopen on Monday morning.
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