Hot on the heels of Wednesday evening’s announcement that Donald Trump will delay a planned tariff hike on $250 billion in Chinese goods from October 1 to October 15 in order to foster trust ahead of a meeting between Bob Lighthizer, Steve Mnuchin and Liu He early next month, reports now indicate the president is considering what sounds like a stopgap agreement.
Specifically, Trump’s advisers are reportedly pondering an “interim deal” with China that would forestall tariffs.
That’s according to sources, who also said the talks are in the preliminary stages and that Trump hasn’t yet signed off on anything. Predictably, the White House denied the report. A senior administration official told CNBC that Trump is “absolutely not” considering an interim deal.
The “limited” deal, which Bloomberg says could be offered to Beijing, would find the Trump administration delaying tariffs and “even rolling back” some existing US duties.
In exchange, the US would demand “commitments” from China on IP theft and also on farm purchases. If that sounds like déjà vu all over again to you, you’re not alone.
Last week, during a call between Lighthizer, Mnuchin and Liu, the Chinese reportedly made a small peace offering involving prospective buying of agricultural goods. On Tuesday, a SCMP article appeared to tip the same “modest” proposal.
“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 said, 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”.
An interim deal would help bolster equity markets and would presumably serve to allay fears among the US electorate that the trade conflict is weighing on the economy, which six in 10 Americans predict will fall into a recession over the next year, according to a new poll released this week.
Increasingly, Trump’s policies are cited by voters as the proximate cause of deteriorating sentiment, and Wall Street has long blamed the trade war for fostering uncertainty and limiting upside in the market.
The following rather poignant visual suggests the president has severely undermined the equity rally sparked by his election, a prospect he is, by his own admission, aware of. “Let me tell you, if I wanted to do nothing with China, my stock market – our stock market – would be 10,000 points higher than it is right now, but somebody had to do this”, Trump told reporters in the Oval Office on September 4.
“Trump is likely to seek some type of mini deal or detente” in order to allay economic and markets pressures this fall, given that “recent negative economic signals have unnerved the White House”, Evercore ISI’s Sarah Bianchi wrote in a note earlier this month, adding that the president’s “high wire balancing act – trying to fundamentally reshape the terms of US/China engagement and face voters in 2020 with a strong economy – is becoming more precarious”.
“Increasing recession risk will raise the incentive for closing a deal even if it means concessions have to be made”, BofA’s David Woo said late last month. “Put differently, the more the market thinks that a deal is never going to happen, the more likely it is going to happen”, he added.
Of course, an interim deal wouldn’t solve all of the underlying issues, many of which are seen as intractable by analysts and experts. It could well be that the administration is starting to come to terms with that reality amid signs that Beijing is prepared to fight this battle for as long as it takes, and in any case, well beyond the 2020 election.
Although you can expect plenty of headline hockey around rumors of an interim deal, markets will likely receive this latest news with open arms – especially considering how hopeless the situation seemed just three weeks ago.