After closing Friday’s session unchanged, S&P futures have slumped 0.4%, or 10 points, to 2,757 dipping below both Thursday’s and Friday’s lows…
… with the Nasdaq down -0.6% so far in early trading…
… after an Axios report poured cold water over enthusiasm that the upcoming G-20 meeting between Trump and Xi could lead to some progress in the ongoing trade war.
According to Axios, and contrary to recent hopes of a detente in the ongoing trade war between the two superpowers, Trump has no intention of easing his tariffs on China. Instead, Axios’ sources say “he wants Chinese leaders to feel more pain from his tariffs” which he believes need more time to fully kick in.
“He wants them to suffer more” from tariffs on $200 billion of Chinese goods Axios said, citing a source with direct knowledge of Trump’s thinking, and the president believes the longer his tariffs last, the more leverage he’ll have.
In other words, Trump’s trade war with China is at the “beginning of the beginning,” and his team doesn’t expect much from the tentatively planned meeting between Trump and Chinese President Xi Jinping on the sidelines of the G20 summit in Buenos Aires next month.
So why are the two leaders meeting?
The Trump economic team has done no substantive planning so far for the bilateral meeting’s agenda, largely because the purpose of the meeting is for Trump and Xi to reconnect, eyeball each other, and feel each other out amid their escalating trade war.
“It’s a heads of state meeting, not a trade meeting,” a source with direct knowledge told Axios.
As another source explained, “Trump is thinking about this meeting as a personal reconnection with President Xi, not a meeting that’s going to evolve into detailed discussions” and added that “the sides are very far apart. … Right now, there’s not the common basis for proceeding.”
Reading between the lines suggests that if anything, the G-20 summit could lead to an even worse outcome as Trump isn’t focused on the details of a potential China deal, “he’s focused on creating more leverage” which could mean adding even more sanctions, especially if Trump is content with the outcome of the midterm elections.
One way, perhaps the only way, Trump has been gauging who is hurt most from the trade war is the stock market, and here China – where the Shanghai Composite recently dropped 30% from its January highs, is clearly the biggest loser.
The generic point Trump makes to aides, per a source with direct knowledge: “‘We are strong and they are weak.’ … He believes more pressure will bring them to the table to make a deal.”
That’s unlikely: instead of preparing concessions to Trump, China has been more focusing on boosting investor confidence in the stock market, although the recent rout shows there is much more work left. On Sunday, none other than president Xi Jinping joined this confidence boosting exercise and vowed “unwavering” support for the country’s private sector, the latest response from Beijing to concern over the outlook for the economy.
“Any words and practices that negate and weaken the private economy are wrong,” Xi said in a letter to private entrepreneurs, Xinhua News Agency reported Sunday. “Supporting the development of private enterprises is the Party Central Committee’s consistent policy,” Xi said quoted by Bloomberg.
Xi’s remarks came after top officials moved to shore up confidence with a rare show of coordinated comments on Friday after a furious margin call-driven sell off on Thursday. Among them, Vice Premier Liu He said China would support the development of private enterprises. At a meeting with policy makers on Saturday, he added that authorities need to accelerate the implementation of measures to encourage healthy development of the economy, according to a statement on the State Council’s website.
Meanwhile, the key negotiators have not made any progress whatsoever: while Treasury officials have had contact with key Chinese negotiator Liu He’s camp to exchange information, there’s been “nothing close to real negotiation” sources said.
“There is some contact with mid-level Chinese, but not much. … I wouldn’t overestimate the planning process.”
Worse, Mnuchin’s negotiating team has told the Chinese there’s no point in them floating plans to buy U.S. products as the key priorities — structural issues like IP theft and market access — must be addressed. And since China will never concede on this issue, especially as it would mean admitting US accusations of IP espionage, there is virtually no hope of any resolution in the near-term.
As Axios summarizes, “all signs suggest the trade war between the U.S. and China is just getting started,” and is unlikely to end any time soon because as Axios’ Jonathan Swan notes, “nobody I’ve spoken to has heard Trump express any concerns” over whether his tariffs could backfire due to Chinese retaliation against American consumers or companies – a position Trump will hold until China does retaliate again.
And finally, confirming that there is absolutely no hope of any near term resolution, in an interview with the FT, Larry Kudlow accused China of doing “nothing” to defuse trade tensions ahead of the G20 meeting in Argentina next month. A detailed list of asks “basically hasn’t changed for five or six months. The problem with the story is that they don’t respond. Nothing. Nada.“
“It’s really the president and the Chinese Communist party, they have to make a decision, and so far they have not, or they have made a decision not to do anything, nothing. I’ve never seen anything like it.”
And with futures on the back foot, we now await China’s open which after Friday’s furious “verbal intervention” rally are set for another move lower as trade fears re-emerge.
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