China Markets trade

Sideshow Bob (Lighthizer).

"...and again I say ‘if’."

Bob Lighthizer’s testimony before the House Ways and Means committee on trade was a sideshow on Wednesday.

As important as the trade story is for markets and for the future of global commerce, hearing Trump’s trade envoy lambast China’s “unfair” practices and reiterate how difficult it is to break the stalemate on key structural issues just didn’t promise to deliver the same kind of entertainment value as Michael Cohen telling America that the president of the United States is a lying, cheating, philandering racist who habitually instructed subordinates to commit actual crimes.

Lighthizer’s testimony of course comes days after Trump extended the deadline for a deal in the interest of keeping the talks going, maintaining his “great relationship” with his “good friend” Xi and, most importantly, avoiding the kind of market turmoil that played out late last year.

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First and foremost, Lighthizer attempted to drive home the point that there’s a lot left to do before a final agreement is reached and he also went out of his way to send some not-at-all-veiled threats at Beijing, noting that the US will reserve the right to retaliate in the event there are compliance issues.

“This administration is pressing for significant structural changes that would allow for a more level playing field — especially when it comes to issues of intellectual property rights and technology transfers”, Lighthizer said, adding that the issues are “too serious to be resolved with promises of additional purchases.”

So, if you were wondering whether China’s promises to buy more US products are going to cut it, the answer is definitively “no”, although I’m not sure why you would think that given the fact that Beijing has repeatedly expressed a willingness to move ahead with efforts to shrink the deficit, to no avail when it comes to pacifying Lighthizer who insisted on Wednesday that “we need new rules.”

Here’s some additional tough talk:

If we can complete this effort – and again I say ‘if’ – and can reach a satisfactory solution to the all-important outstanding issue of enforceability as well as some other concerns, we might be able to have an agreement that turns the corner in our economic relationship with China. Much still needs to be done, both before an agreement is reached, and more importantly, after it is reached.

Turning to some actual video highlights that you invariably don’t care about, here’s Bob rambling about how he’s “distilled” the opinions of all stakeholders down into some kind of “band”, which he then uses as a guide in the course of developing a prospective deal. He also pounds the table (not literally, but almost) on just how “enforceable” this needs to be and how the US has to be able to act “unilaterally” in the course of any enforcement efforts.

 

Asked “what will be different this time” and also “what can we expect next”, Lighthizer could have just said “everything” and “a long process”, but he instead regaled lawmakers with the usual list of grievances around structural issues including forced technology transfer, IP theft and subsidies, on the way to essentially suggesting that the US is demanding complete surrender.

He also made it abundantly clear that this isn’t going to be settled with a single meeting and/or “signing event” (as Trump has billed his prospective pow wow with Xi in Florida) because, to quote Bob, that would a “foolish” assumption.

Additionally, he suggested that everybody can hunker down for what promises to be an arduous path forward when it comes to evaluating the success of whatever deal does come about and ensuring the Chinese are in compliance.

 

On enforcement, there’s apparently a plan in the works that involves regular meetings between various officials, with principal-level talks occurring semi-annually. Vice ministers will meet quarterly. If things ever get to the point when Bob and Liu He can’t agree on something, that’s when the US would exercise its “right” to retaliate – or something.

Notably, Lighthizer appeared to cast doubt on Steve Mnuchin’s contention that the currency aspect of the deal has been settled. “There’s no agreement on anything until there’s agreement on everything”, he said, adding that “the reality is we have spent a lot of time on currency and it will be enforceable.”

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As ever, it is by no means clear how any currency pledge would be “enforceable”. Currency “stability” can mean anything and besides that, the debate about the yuan is supremely ironic considering the US has variously suggested market forces should dictate where the currency trades. Apparently that doesn’t apply when those “forces” involve the market pushing the yuan lower and thereby watering down the impact of the tariffs, though.

Anyway, we imagine you get the point. There’s a lot of work left to be done, there’s (still) considerable uncertainty around the structural sticking points that have plagued the negotiations for the better part of a year, enforcement is going to be a veritable nightmare and Bob isn’t “foolish” enough to think any different.

Are you?


 

1 comment on “Sideshow Bob (Lighthizer).

  1. Dead man walking (metaphorically speaking).

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