Steve Mnuchin Invites China To Strike Another Trade ‘Truce’ So Trump Can Shoot It Down

Don’t hold your breath.

You should take this with a grain (or maybe a whole shaker) of salt, but the U.S. has reportedly proposed a new round of trade talks with China as the market warily eyes the next round of prospective tariffs.

According to the Wall Street Journal, the Trump administration wants to “give Beijing another opportunity to address Washington’s concerns over trade issues before the Trump administration implements additional tariffs on Chinese imports.” That’s according to people briefed on the matter, who apparently spoke to Dow Jones.

If you want the specifics, it turns out that Steve Mnuchin recently sent Vice Premier Liu He a letter offering to hold a fresh round of apparently high-level talks after discussions between David Malpass and a Chinese delegation went nowhere last month.

Late in July, similar reports suggested Mnuchin was set to restart negotiations with Liu He, with whom the Treasury Secretary struck a short-lived trade “truce” back on May 19, after two days of talks in Washington.

That truce (which revolved around the prospect of China purchasing more goods from the U.S.) lasted all of about 10 days.

Facing a backlash from the protectionist contingent and fearing Mnuchin’s “on hold” comments sent the “wrong” message to his base, the President abruptly changed course, refusing to grant further waivers to Canada, Mexico, and the European Union on the metals tariffs, and setting a deadline (July 6) for the imposition of duties on $34 billion in Chinese goods.

It’s obviously been a train wreck since then.

The comment period on the next round of tariffs targeting $200 billion in Chinese goods expired last week and most market commentators and analysts expected an imminent announcement from the USTR. Fast forward six days and everyone is still in the dark, not just on when and whether Trump will escalate things further, but also on what the tariff rate would be in the next round (25% or 10%).

Trump added to the ambiguity last week, when he told reporters aboard Air Force One that duties on another $267 billion in Chinese imports are “ready to go” should Beijing retaliate as expected when hit with levies on $200 billion in exports.

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As ever, the worry here for markets is that prices for U.S. consumer goods will rise as a result of the tariffs, prompting the Fed to lean more hawkish for fear of an inflation overshoot. It will be impossible for the administration to avoid finished goods going forward.



Again, I wouldn’t hold my breath here. As noted above, Mnuchin and the Chinese Vice Premier have tried and failed to assuage Trump’s concerns before.

It’s not at all clear what would be “good enough” for the President, and as we’ve argued on any number of occasions, it’s entirely possible that Trump intends to keep this feud going in order to ensure he always has someone (in this case China) to blame for America’s problems.

News that China’s trade surplus with the U.S. hit a record in August likely angered the President further, giving him fresh incentive to ratchet up the pressure.



So as Trump would say: “We’ll see what happens.”

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