Since the US-China trade war broke out this spring, Larry Kudlow and Steven Mnuchin have repeatedly tried to arrange senior-level trade talks with their Chinese counterparts, only to be frustrated or sabotaged by President Trump.
So when the two officials tasked with managing the detente read the transcript of a WSJ interview with Trump where their boss once again resorted to making provocative threats just four days before the beginning of the G-20 summit, where Trump is expected to meet with Chinese President Xi Jingping, we could imagine them being (understandably) miffed.
With equity futures on track to open lower as investors worry that Trump’s bellicose trade talk might anger Xi, several senior Trump administration officials reportedly told Politico that they’re “not happy with the nature of Trump’s comments.” Speaking “anonymously,” the officials – we have a few guesses as to their identities – told Politico that they are worried Trump’s comments might make reaching a deal with Xi – or at least a “pathway” to future talks – difficult, if not impossible.
MM hears that some of Trump’s top advisers were not at all happy with the bellicose nature of the president’s comments to the Wall Street Journal on China tariffs, fearing they could make the high-stakes meetings with Xi even more difficult.
During the interview, Trump said he had no plans to cancel the next stage of tariffs on Chinese imports (tariffs on roughly $200 billion of Chinese goods are set to rise to 25% from 10% early next year), and added that he wouldn’t hesitate to slap tariffs on the other $267 billion in imports that haven’t already been targeted. Even Apple products and other consumer electronics would not be spared, Trump said. If Apple wants to avoid the tariffs, it can build factories in the US. Since May, the US has slapped tariffs on some $250 billion on Chinese goods, while China has retaliated with tariffs on $60 billion of American products, including foodstuffs like soybeans, which have hammered US farmers.
But whoever went squawking to Politico has apparently forgotten that this isn’t the first time Trump has made a threat like this. Hard-line rhetoric has become a staple of Trump’s negotiating strategy, as one Credit Suisse analyst told Bloomberg.
“This is largely a negotiation tactic,” said Tao Dong, vice chairman for Greater China at Credit Suisse Private Banking in Hong Kong. “Putting high stakes pressure on to the other side seems to be a consistent pattern from the Trump administration.”
China almost certainly recognizes this. And given their willingness to engage in the talks to begin this, it’s likely that they’ve already accepted that Trump will from time to time make these types of public threats. And as China has repeatedly rebuffed US demands to agree to a deal ‘framework’ that would involve China lowering subsidies for tech firms and end its IP theft, in addition to lowering its trade surplus with the US, Xi will likely arrive at the meeting with his own hard-line stance.
As investors have probably ascertained from the first five months of the trade war, the “talks” between the US and China will probably come down to who blink first.
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