Those who have variously warned against reading too much into ostensibly upbeat trade headlines appear to have been vindicated on Tuesday afternoon.
As a reminder, trade optimists were hanging their hats on three things:
- reports that China had offered to cut the trade imbalance with the US to zero within six years
- reports that Steve Mnuchin had suggested lifting tariffs in an effort to bring Beijing to the table
- Vice Premier Liu He’s upcoming visit to Washington
The market seized on the reports mentioned in the first two bullet points as an excuse to extend equities’ YTD gains last week, despite the fact that the US delegation apparently rejected China’s timetable for cutting the deficit as not ambitious enough and despite Treasury having issued a denial in relation to the idea that anyone had “recommended” lifting tariffs as part of the negotiations.
On the Vice Premier’s planned visit to Washington, recall that he unexpectedly attended discussions in Beijing earlier this month. Those talks were supposed to be “mid-level”, but his presence appeared to change the dynamic. He’s also the man who struck a tentative deal last May with Mnuchin before Donald Trump, under pressure from the protectionist contingent in his administration, tanked the deal.
Over the past several days, there have been a couple of negative headlines on trade, including reports that there’s been no progress on key structural issues, most notably IP theft.
Well, sure enough, FT is out reporting that Trump has rejected an offer from Beijing to send two Chinese vice-ministers to the US this weeks to set the table for Liu He’s visit later this month.
The White House is reportedly citing “a lack of progress on two important issues” – namely, forced technology transfer and what FT describes as “far-reaching structural reforms.” To wit:
This week’s planned trip by Wang Shouwen and Liao Min was intended to pave the way for a higher-level meeting in Washington on January 30 and 31 by Liu He, China vice-premier, and Robert Lighthizer, US trade representative. But, according to people briefed on the negotiations, US officials cancelled this week’s face-to-face meetings with Mr Wang, a vice-minister of commerce, and Mr Liao, a vice-minister of finance.
Apparently, Trump was demanding that Wang and Liao show up with an actual written offer describing what China plans to do with regard to placating the US on forced tech transfer. The White House is also demanding that Xi do away with subsidies and industrial practices that disadvantage foreign investment.
Of course Beijing has made a number of overtures on the latter issue over the past several months and on the forced technology sticking point, that looks like it’s (still) a non-starter.
This raises questions about how fruitful the Vice Premier’s trip at the end of this month will ultimately be and it also appears to underscore the contention that a part of Trump wants this to keep going – even if he simultaneously wants to get something done in the interest of boosting the market.
Speaking of the market, stocks were already having a rough day and the FT piece made it worse. S&P futs are now off some 2% since last week’s highs.
This also comes less than a day after Trump mocked the Chinese economy on Twitter on the way to urging Xi to “stop playing around.”
We’ll see who’s “playing around” if US equities take another turn for the worst or if the President’s “greatest” shutdown ends up pushing the US economy over the edge.