Heisenberg Report

US, China Discussing Text Of Trade Agreement, Beijing May Buy Farm Goods: Report

Last week, during a call between Bob Lighthizer, Steve Mnuchin and Vice Premier Liu He, the Chinese made a small peace offering to the Trump administration.

Specifically, Liu suggested China might be willing to make “modest” farm purchases in exchange for an agreement from the Trump administration not to raise the tariff rate on $250 billion in products on October 1.

According to people familiar with the talks, Beijing is also looking to see some export restrictions on Huawei lifted.

Read more: China Said To Offer ‘Modest’ Farm Purchases In Exchange For Delay Of October 1 Tariff Hike

As discussed over the weekend, that doesn’t say much for where these negotiations currently stand, but news of the call was enough to contribute to a second consecutive week of gains for US equities.

Fast forward to Tuesday and risk assets responded in predictable knee-jerk fashion to a SCMP article which appears to tip the same “modest” proposal from Beijing. More importantly, the piece says that the working-level talks ahead of the principal-level negotiations are centered around the text of a deal that’s reminiscent of the 100-page draft that Xi reportedly took a red marker to just prior to Trump’s May 5 meltdown.

“China is expected to agree to buy more American agricultural products in hopes of a better trade deal with the United States as the two nations prepare for a meeting between their top negotiators next month”, SCMP reports, citing a source familiar with the talks, who also said “working-level officials were discussing the text of a deal… based on a draft the two sides negotiated in April”.

That text will be at the center of the pow wow between Liu, Lighthizer and Mnuchin when the Chinese delegation arrives in Washington in early October.

SCMP parrots Politico’s reporting from Friday in saying that any farm purchases would likely be contingent on Trump delaying the October 1 tariff hike and easing the Huawei ban.

Crucially, the source said “China could also offer more market access, better protection for intellectual property and to cut excess industrial capacity”.

Those are all things the market (and the US) has heard before, but this latest reporting is more definitive than what’s come out of the rumor mill over the last several weeks.

Still, the source cautioned that Beijing “would be more reluctant to compromise on subsidies, industrial policy and reform of state-owned enterprises”, all sticking points in previous discussions.

Take it all with a grain – or maybe a whole shaker – of salt.


 

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