Let’s take a trip down memory lane to April of 2017 when CNBC “money honey” turned shameless Trump sycophant Maria Bartiromo asked the President what it was like to launch missile strikes on Syria while having cake with Xi Jinping.
Here is the indelible clip that finds a fascinated Bartiromo just dying for details about the exact moment when Trump told Xi about the military action.
It never gets old. There’s so much to love there. For one thing, Trump and Bartiromo think it is “brilliant” and “genius” that the U.S. has unmanned missiles. Additionally, Trump doesn’t seem to know which country he actually bombed, initially telling Bartiromo the missiles hit “Iraq”. But the highlight (and the headline grabber) is obviously the description of the chocolate cake.
Well, chocolate cake diplomacy is going to get another test when Trump sits down for dinner with Xi in Buenos Aires with the fate of global trade and commerce on the line. Despite the fact that handicapping this dinner is by definition impossible because one of the people involved is Donald Trump, Wall Street is desperately trying to figure out what the most likely outcome will be.
To be clear, the optimists and the pragmatists (which is the same thing in a world where the man with his finger on the button is the opposite of pragmatic) are hoping for a deal that sees the Trump administration agree to hold off on further tariffs, where that means delaying the planned hike to the rate at which the $200 billion in Chinese goods that were subject to duties from September 24 are taxed. A delay in that escalation (due at the turn of the calendar year) would likely mean the administration would not move ahead with the publication of a list in conjunction with duties on the remainder of Chinese imports.
Of course Trump himself said it is “highly unlikely” that he will delay the planned hike, presumably because he knows doing so would remove the optionality he has when it comes to slapping tariffs on what’s left of Chinese imports.
For their part, Goldman isn’t particularly optimistic. “Market participants’ expectations about the size and scope of US tariffs became increasingly pessimistic in the autumn as the second round of tariffs was implemented”, the bank writes, in a note dated Thursday evening, before underscoring Trump’s schizophrenia. “Recent comments from Trump have alternately raised hopes about a détente and discouraged them”, the bank says, flatly.
Goldman goes on to bemoan the fact that “the tone of US-China relations has shifted dramatically over the past year” and while the bank of course flags Mike Pence’s hawkish rhetoric has one cause of the shift, they remind you that “other administration documents had already taken a more confrontational tone, characterizing China as a strategic rival.”
Next, the bank flags the key issues for the U.S. as follows:
Most obviously, the US trade deficit with China has widened to new highs (Exhibit 2). The US endured a huge retrenchment in manufacturing employment after China’s entry into the WTO (Exhibit 3), in contrast to expectations at the time. Foreign companies operating in China have repeatedly expressed frustration with the business environment and perceptions of a non-level playing field. Meanwhile, China has seen enormous improvement in material standards of living over the past two decades (accounting for the bulk of the reduction in global poverty over this period)—reflecting in part the spillovers from strong export growth.
In other words, globalization as a utilitarian principle is working out great, which is as it should be.
After discussing the extent to which China’s “more forward-leaning posture” both in terms of throwing its economic weight around and asserting itself geopolitically, Goldman breaks down U.S. demands into two categories.
The first are “relatively ‘transactional’ requests” including, obviously, increased purchases of U.S. goods to bring down the bilateral deficit and opening up China to foreign firms. The second are “harder-to-monitor” changes including IP protections and “industrial subsidies and strategy.”
For Goldman, the big question is this:
Is President Trump willing to forgo difficult negotiations and ongoing monitoring of commitments on the items in category 2 to secure high-profile “wins” in category 1?
The answer would appear to be “no”, at least based on the fact that he rejected just such a deal back in May. But the stakes are higher now with the U.S. economy set to decelerate and the domestic equity market cracking.
Bottom line: Goldman puts the odds of further escalations (i.e., of this producing no tangible or really even intangible progress) at just over 50%. That, the bank says, is the “most likely” outcome. Second to that, Goldman notes that a “pause” is possible, where that means “an agreement to talk further and put additional tariffs on hold for an indefinite period.”
As far as the prospects for an actual deal (read: a real breakthrough), Goldman puts those odds at just 10% in the near term.
Apparently they don’t know about the chocolate cake.