China Extends Olive Branch To Trump, Markets With Thursday Trade Comments

You can thank Chinese Commerce Ministry spokesman Gao Feng for the buoyant mood in risk assets on Thursday.

At his regular briefing in Beijing, Gao said that although China has plenty of scope to hit back at the Trump administration, it would be preferable to chat with the US about the removal of the new duties.

“China has ample means for retaliation, but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation of the trade war”, Gao said, adding that  “China is lodging solemn representations with the US on the matter”.

The comments gave risk assets an immediate boost.

This would appear to suggest that planned talks between Bob Lighthizer, Steve Mnuchin and Liu He will, in fact, go ahead. Those talks were in jeopardy following recent escalations.

Gao was asked whether his somewhat ambiguous comments meant Beijing wouldn’t hit back at the Trump administration for the latest tariffs. He demurred, preferring to repeat his previous statements. He also said that if China travels to the US, negotiators should work together to ensure the conditions are in place for talks to be productive.

“Should the additional US tariffs be implemented, further Chinese retaliation is highly probable, although we think policymakers are likely to wait at least a short time to evaluate their options and assess the likelihood of these latest US tariffs being implemented”, Goldman wrote, in a Wednesday note, adding that “going forward, we think company-specific actions remain a high risk, with ongoing hints from Chinese media that US companies could be placed on an ‘unreliable entities list’ potentially affecting their business in China”.

(Goldman)

Asked whether calls have taken place, Gao said the two sides have always been “in effective touch”, which doesn’t exactly validate Donald Trump’s claims about a specific phone call on Sunday evening, but it’s good enough to placate markets.

Gao’s remarks came hours after Peter Navarro told Fox News that no breakthroughs are likely in the near-term. Steve Mnuchin, for his part, told Bloomberg on Wednesday that talks would happen, but declined to say when. Mnuchin and Kudlow on Sunday supported Trump’s assessment that the White House could compel US companies to relocate out of China using emergency powers.

Earlier this week, Trump appeared to adopt a more conciliatory stance following Friday afternoon’s decision to hike the tariff rate on two lists of Chinese goods. The US president lavished praise on Liu He Monday after the Vice Premier said China was prepared to try and resolve issues with the US via “calm consultation and cooperation” and “firmly opposes escalation of trade war”.

Gao repeated Liu’s line in his remarks to reporters Thursday.

The two sides are still discussing next month’s trip and Beijing said it will make further details available when possible.

“Escalation of the trade war won’t benefit China, nor the US”, Gao remarked.