In the two weeks since the Osaka trade truce, market participants have remained understandably wary of getting too comfortable when it comes the outlook for relations between Washington and Beijing.
After all, the “deal” included no timeline for removing existing tariffs and although Donald Trump insisted that China promised to buy US farm goods as a goodwill gesture, it’s still unclear whether any such agreement was actually reached. The USTR’s aggressive rhetoric towards the EU (on the Airbus issue) and the Commerce department’s decision to hit Vietnamese steel with 400%+ levies underscore the extent to which the administration is nowhere near abandoning the trade war.
Making matters worse, Trump has ratcheted up the currency manipulation rhetoric, leading many analysts to suggest that Steve Mnuchin may be asked to intervene directly in the FX market.
On Tuesday, during a cabinet meeting, the president delivered a series of disconcerting remarks that immediately rippled across markets just after lunchtime in New York.
“Europe and China are pumping money into their systems”, Trump said, in the course of reiterating that he wants the Fed to cut rates because it “would boost the stock market”.
He insisted that China “is supposed to buy US farm products”, a contention which, again, has never been verified by Beijing. Over the past two weeks, multiple reports have suggested China is reluctant to start buying given Trump’s penchant for going back on his word and generally negotiating in bad faith. Peter Navarro last week called those reports “garbage“.
Trump also reminded everyone (and this is a reminder that exactly nobody needed) that there’s a “long way to go” on talks with China and “We can impose more tariffs if we want”.
But don’t worry, because as the president went on to say, “Tariffs only have a positive impact on the US”.
On Monday, Trump mocked Beijing on Twitter after Q2 GDP data showed China’s economy growing at the slowest pace in 27 years. “This is why China wants to make a deal with the US, and wishes it had not broken the original deal in the first place”, he claimed.
On Tuesday, Beijing hit back.
“As for United States’ so-called ‘because China’s economy is slowing so China urgently hopes to reach an agreement with the US side’, this is totally misleading”, Foreign Ministry spokesman Geng Shuang said.
Yep, things are progressing very smoothly, indeed.