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US, China Will Hold Do-Over Trade Talks In Washington As Einsteinian Insanity Takes Hold

"I hope you keep up the good work."

Negotiations between both sides have achieved important progress in another step. Next week, both sides are going to meet in Washington. I hope you keep up the good work, and push for a mutually-benefiting and win-win agreement.

That, apparently, is what Xi Jinping told Bob Lighthizer, Steven Mnuchin and more than a dozen other people gathered around him at the Great Hall of the People in Beijing on Friday at the conclusion of the latest round of trade talks between the US and China.

After flying all the way to Beijing just a week after Liu He flew all the way to Washington, Bob Lighthizer and Steven Mnuchin will fly back to that same Washington where they’ll have the same conversation with that same Liu He again next week.

And all of this because Trump is too busy with his farcical “national emergency” and with preparations for a second summit with Kim Jong-Un to fit Xi into his schedule.

Actually, no. That’s not entirely accurate. As ever, there are structural issues that haven’t (and probably won’t) be resolved. Central to the impasse is China’s subsidizing of SOEs and, of course, market access for foreign interests. Earlier Friday, FT reported that both the US delegation and Chinese officials were aiming to produce an MOU prior to wrapping things up that would serve as the centerpiece for a Trump-Xi meeting next month, but sticking points complicated the effort.

“Chinese officials are angry about what they see as US efforts to undermine their state-led economy and the Trump administration’s campaign to bar Huawei from participating in the buildout of 5G networks overseas”, FT writes, adding that “they are also reluctant to agree to any post-agreement enforcement mechanisms that would allow the US to maintain or re-impose existing tariffs on Chinese imports.”

In the same piece, FT notes that the US side was “livid” at the leak that triggered Bloomberg’s reporting regarding the Trump administration’s purported willingness to consider a 60-day tariff extension. Presumably, that gave Liu He some leverage, assuming he was unaware of that possibility previously.

Of course Trump himself said he was open to letting the deadline “slide”, so it’s not as if this was a secret and most analysts believe the US would be reluctant to risk a market selloff by allowing the deadline to lapse (and tariffs to more than double) just because there are scheduling conflicts.

Mnuchin called the talks “productive” in a somewhat absurd tweet that featured an extremely awkward group photo and found the Treasury secretary @’ing Bob.

Speaking of Bob, he said the following (according to AP):

We feel we have made headway on very, very important and difficult issues. We have additional work we have to do but we are hopeful.

One thing that wasn’t “hopeful” on Friday was the Chinese equity market. The SHCOMP had its worst day in two months.

SHCOMP

To be fair, some of this is likely profit taking – Chinese equities were overbought on the heels of the YTD risk asset surge.

RSISHCOMP

As far as next week’s trade talks in Washington are concerned, one can only hope the US has the capacity to keep the Chinese delegation safe.

After all, there’s an “invasion” afoot and one imagines the “caravans” will easily make their way to DC by the time Liu He is wheels down. It could be anarchy.


 

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2 comments on “US, China Will Hold Do-Over Trade Talks In Washington As Einsteinian Insanity Takes Hold

  1. “Central to the impasse is China’s subsidizing of SOEs”

    Effective tax rate of some main players ( I took them from official 10-K Forms)
    Facebook 13%
    Google 12%
    Amazon 11%
    Apple 16.5%
    Msft 19%
    Nflx 1%

    Not only they got a reduction from statutory 35% down to 21%, but thanks to stock-based compensation and other tax benefits the main ndx companies are paying well below 21%. (Msft and Aapl look like close to pay near statutory tax rate anyway).

    So, let me understand: Trump makes a gift to corporate America, runs trillions in deficit, companies find also several loopholes and come to pay 11% tax on average.
    How do we call that? Subsidizing as well?

    In some cases billions thrown to companies for the promise of creating jobs (unkept promises, see Tesla with its solar business for instance).

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