Trump and Xi kick the can 90 days down the road on trade war escalation

In a two-and-half hour dinner meeting at the G 20 summit in Buenos Aires, the US and China agreed to postpone planned escalation in tariffs while further negotiations take place. The meeting was longer than anticipated, starting an hour early after President Trump cancelled both his meeting with Vladimir Putin and a scheduled afternoon press conference, allowing time for substance was discussed in some detail.

Photo credit: Voice of America

There were 2 aspects to the agreement reached over dinner. One, the one getting the most attention:

Mr Trump agreed not to boost tariffs on $200 billion of Chinese goods to 25 percent on January 1 as previously announced, while Beijing agreed to buy an unspecified but "very substantial" amount of agricultural, energy, industrial and other products, the White House said in a statement.

And two:

In other key results from the talks, the U.S. promised to uphold the one-China policy, Wang said, while China threw its support behind further meetings between Trump and North Korean leader Kim Jong Un.

The White House said that Xi would consider approving a possible $44 billion deal for Qualcomm Inc. to purchase NXP Semiconductors NV if it’s brought to him again. It also said China agreed to designate the synthetic opioid fentanyl, which has been linked to an epidemic of overdose deaths, as a controlled substance -- a move that would expose its sellers to the maximum penalty under Chinese law.

Thus, the hardball negotiations will continue:

The two leaders also agreed to "immediately begin negotiations" on technology transfer, protecting intellectual property, non-tariff barriers, "cyber intrusions" and cyber theft, services and agriculture, according to the statement.

So far, in pre-market trading, there is no sign that stock investors are celebrating:

Source

China is suffering more from the first round of tariff escalation because its enormous trade surplus is far more affected by tariffs than the US’s comparatively punitive exports to China. Continuing the status quo hurts China more than the US. This is the underlying reality that Trump grasped in beginning the trade offensive, so the pressure on China continues to build as the can is kicked down the road.

Already, one of Xi’s moves against the US has backfired. You may recall that China purchased a 4-page advertising supplement to the Des Moines Register targeting Iowans with the information that their exports to China are in peril. With its status as the first expression of voter interest in presidential elections thanks to the Iowa Caucuses, damaging Trump in Iowa carries extra weight in Chinese thinking. China therefore targeted US pork for punitive tariffs because Iowa produces both pork and corn, the principal feed for pigs.

But in an act of God (or Marx or random chance, if you prefer), China is buying as much pork from the US as ever:

A disease sweeping through Chinese hog herds is helping negate the effects of the trade war for American farmers, with U.S. pork sales to the Asian nation back to levels before tariffs were introduced.

China was the third-largest buyer of pork in U.S. Department of Agriculture weekly data released Thursday. The 3,300 metric ton-purchase was the most since February, a month before China imposed tariffs on U.S. pork. Hog futures rose 4.4 percent in Chicago, the most in two weeks.

Source

(The prominent spike represents buying in advance of tariffs, and is far larger than the trough that followed. Overall, US pork sales are slightly up.)

Time is on Trump’s side. That's why this move is a victory, albeit an incremental one, for the US.

In a two-and-half hour dinner meeting at the G 20 summit in Buenos Aires, the US and China agreed to postpone planned escalation in tariffs while further negotiations take place. The meeting was longer than anticipated, starting an hour early after President Trump cancelled both his meeting with Vladimir Putin and a scheduled afternoon press conference, allowing time for substance was discussed in some detail.

Photo credit: Voice of America

There were 2 aspects to the agreement reached over dinner. One, the one getting the most attention:

Mr Trump agreed not to boost tariffs on $200 billion of Chinese goods to 25 percent on January 1 as previously announced, while Beijing agreed to buy an unspecified but "very substantial" amount of agricultural, energy, industrial and other products, the White House said in a statement.

And two:

In other key results from the talks, the U.S. promised to uphold the one-China policy, Wang said, while China threw its support behind further meetings between Trump and North Korean leader Kim Jong Un.

The White House said that Xi would consider approving a possible $44 billion deal for Qualcomm Inc. to purchase NXP Semiconductors NV if it’s brought to him again. It also said China agreed to designate the synthetic opioid fentanyl, which has been linked to an epidemic of overdose deaths, as a controlled substance -- a move that would expose its sellers to the maximum penalty under Chinese law.

Thus, the hardball negotiations will continue:

The two leaders also agreed to "immediately begin negotiations" on technology transfer, protecting intellectual property, non-tariff barriers, "cyber intrusions" and cyber theft, services and agriculture, according to the statement.

So far, in pre-market trading, there is no sign that stock investors are celebrating:

Source

China is suffering more from the first round of tariff escalation because its enormous trade surplus is far more affected by tariffs than the US’s comparatively punitive exports to China. Continuing the status quo hurts China more than the US. This is the underlying reality that Trump grasped in beginning the trade offensive, so the pressure on China continues to build as the can is kicked down the road.

Already, one of Xi’s moves against the US has backfired. You may recall that China purchased a 4-page advertising supplement to the Des Moines Register targeting Iowans with the information that their exports to China are in peril. With its status as the first expression of voter interest in presidential elections thanks to the Iowa Caucuses, damaging Trump in Iowa carries extra weight in Chinese thinking. China therefore targeted US pork for punitive tariffs because Iowa produces both pork and corn, the principal feed for pigs.

But in an act of God (or Marx or random chance, if you prefer), China is buying as much pork from the US as ever:

A disease sweeping through Chinese hog herds is helping negate the effects of the trade war for American farmers, with U.S. pork sales to the Asian nation back to levels before tariffs were introduced.

China was the third-largest buyer of pork in U.S. Department of Agriculture weekly data released Thursday. The 3,300 metric ton-purchase was the most since February, a month before China imposed tariffs on U.S. pork. Hog futures rose 4.4 percent in Chicago, the most in two weeks.

Source

(The prominent spike represents buying in advance of tariffs, and is far larger than the trough that followed. Overall, US pork sales are slightly up.)

Time is on Trump’s side. That's why this move is a victory, albeit an incremental one, for the US.