“Too Soon For A Deal”: All You Need To Know About “The Most Important Trump-Xi Meeting In Years”
“Too Soon For A Deal”: All You Need To Know About “The Most Important Trump-Xi Meeting In Years” from ZeroHedge
With the United States and China locked in growing disputes over trade and security that have raised questions about the future of their relationship, presidents Trump and Xi are due to sit down for dinner at the end of a two-day gathering of G-20 world leaders in Buenos Aires. The highly anticipated meeting between the two superpower leaders, which is expected to be the defining market moving event for the last month of the year, will wrap up a global summit on Saturday with high-stakes talks expected to determine whether they can begin defusing a damaging trade war between the world’s two biggest economies.
On Friday, the market bounced hard into the close after the first day of the G20 summit offered glimmers of hope for progress between Washington and Beijing despite Trump’s earlier threat of new tariffs, which would increase tensions already weighing on global financial markets. But on the eve of what Reuters dubs “the most important meeting of U.S. and Chinese leaders in years“, both sides said differences remained, and the outcome of the talks were uncertain.
There are two parallel pathways that traders will keep a close eye on today in Buenos Aires:
The first, and less important one, has to do with whether the G20 summit will conclude with a consensus statement as delegates from G20 nations worked late into the night to seek agreement on the summit’s final communique, which in past years has been worked out well in advance.
According to Reuters, European officials said on Saturday that a draft of the document committed to reforming the World Trade Organization (WTO), which has been engulfed in institutional crisis just when it is most needed to perform its role as umpire in trade disputes. They said the draft also included a reference to climate change – a sensitive issue for Trump, who is a skeptic that global warming is caused by human activity.
The communique needs to be endorsed by the leaders of member states.
The second, and far more critical one, is the outcome of the dinner talks between Trump and Xi, which according to Goldman “represents an important milestone in the continuing US-China trade tensions” and “an opportunity to de-escalate the trade dispute between the two countries.”
In previewing the odds of a favorable outcome, Trump was typically coy on Friday even as he noted some positive signs.
“We’re working very hard. If we could make a deal that would be good. I think they want to. I think we’d like to. We’ll see,” he said, speaking during a meeting with Japanese Prime Minister Shinzo Abe.
The market then rallied hard into the close when a Chinese foreign ministry official in Buenos Aires said there were signs of increasing consensus ahead of the discussions but that differences persisted. Beijing hopes to persuade Trump to abandon plans to hike tariffs on $200 billion of Chinese goods to 25% in January, from 10% at present. To date, roughly $250 billion in goods from China and $110 billion in goods from the US have been subject to additional tariffs, and further tariffs have been threatened. Trump has threatened to go ahead with that and possibly add tariffs on $267 billion of imports if there is no progress in the talks.
As shown in the chart below, for much of 2018 the Trump Administration’s proposal of new tariffs far outpaced actual implementation. By July, the Administration had proposed tariffs on solar panels and washing machines ($10bn), global steel and aluminum imports ($50bn), global automobile imports ($340bn), and all imports of goods from China ($500bn). From June through August, the amount of imports subject to tariffs ratcheted up very gradually, and it was not until September 24 – when the US imposed tariffs on $200bn in imports from China – that the amount rose more substantially.
The effect of these tariffs has been evident in customs receipts, which have risen substantially over the last few months, something which Trump has repeatedly touted as a fringe benefit of the escalating trade war.
So what, according to Goldman, are the odds of a (credible) deal being announced today? Surprisingly, Goldman is rather pessimistic saying that it is “Too soon for a deal.”