Rising 73 points today, the Dow Jones Industrial Average showed some cautious optimism that 73-year-old President Donald Trump and 66-year-old Chinese President Xi Jinping can resolve their trade war, costing global Gross Domestic Product about 0.50% according to the Washington, D.C.-based International Monetary Fund. When Trump and Xi meet June 29 on the sidelines of the G20 summit in Osaka, Japan, the whole financial world is hoping that the two industrial giants resolve their differences, giving Trump enough to end the current $200 billion in tariffs on Chinese goods. If there’s any clue, China Global Times reported yesterday that China would purchase 544 metric tons of soybeans worth $200 million. While much less than past purchases of 2,000 metric tons, it’s a start in the right direction, only days before Trump and Xi meet in Osaka to resolve their differences.
Before there’s too much optimism, China’s already signaled it’s prepared to end the trade war as long as the U.S. ends all tariffs on $200 billion worth of Chinese goods, netting the U.S. $55 billion. Signaling that Trump continues to drive a hard bargain, Director of Trade and Manufacturing Policy Peter Navarro isn’t likely to cave into Beijing’s demands. Considered a close kitchen Cabinet adviser to Trump, Narvarro’s the architect, together with National Economic Council Director Larry Kudlow, of the trade war with China. Both think they can win concessions from Beijing if China’s Gross Domestic Product continues to shrink. “The tone was largely positive from the various world leaders, [and] China was less positive,” said an unnamed U.S. official in Osaka. “Just a more negative tone [from China].” While the media holds its breath, a breakthrough isn’t likely.
Trump tried to express optimism about the prospects of a trade deal with China. “At a minimum, it will be productive,” Trump said at a meeting with Xi. “We’ll see what happens tomorrow. It’ll be a very exciting day. I’m sure. It’s going to come out hopefully well for both countries,” yet not making any predictions. With Navarro holding firm, it’s doubtful Trump will be willing to give up all the tariffs Xi wants to return-to-normal trade relations. Trump complained about the $500 billion trade deficit with China, unable to get U.S. farmers more balanced trade deals. If not resolved, Trump promised to tariff another $325 billion in goods, something that could send global stock markets sliding. With many U.S. companies shifting manufacturing to other Asian countries, like Malaysia and Vietnam, China could lose a lot of manufacturing business if they don’t resolve the trade war.
Global macroeconomic trends lean toward an e economic slowdown demands the U.S. and China resolve their trade dispute. Navarro and Kudlow know the political implications if they let the U.S. economy slide into recession. Trump faces and uphill battle for reelection if the country lapses into economic slowdown or recession in 2020. If Trump lets global recession vectors hit the U.S., it takes time for the U.S. Federal Reserved Board to intervene quickly enough to turn things around. China has been especially insistent to the U.S. doing business with Huawei, a leader in the latest generation of 5G technology. U.S. intelligence agencies have warned about Huawei’s chips compromising U.S. national security, building in spying capacity. Xi wants Trump to approve and end to the ban immediately on Huawei’s chips, setting up a confrontation with U.S. intel agencies.
Letting Huawei’s chips build out the next generation communication technology exposes the U.S. to security concerns. Xi insists U.S. telecom companies transfer technology in artificial intelligence [AI] and telecommunications, despite security concerns. Xi called for “fair, just and non-discriminatory market environment,” adding that “data to the digital economy is the same a oil for industrial economies.” “At the same time as we expand digital trade, we must also ensure the resilience and security of our 5G network,” Trump said, reluctant to ignore security experts to buy Huawei’s chips. U.S. security experts accused Huawei of supplying chips that enable the Chinese government to engage in industrial espionage. Whatever happens with Xi and Trump tomorrow is anyone’s guess. It’s almost certain that Trump will cut trade deals with Japan and India.
When you look at all the obstacles, it’s going to be difficult for the U.S. and China to resolve its trade war. Trump isn’t likely to end tariffs with China, unless China agrees in writing to punish any Chinese firm engaged in copyright, patent and other infringements on U.S. companies. “This is clearly an exchange about the sanctions imposed against Huawei and some other Chinese hi-tech firms,” said Daniel Sneider, Stanford University lecturer in international trade policy. “Lifting those are a priority for Xi and the Chinese regime,” making a deal next-to-impossible. Using the trilateral relationship with Japan, India and the U.S., Trump hopes to pressure China to get on board. U.S. Trade Representative Robert Lighthizer is busy working on a separate trade deal with Japan and India. If China doesn’t want to be the odd-man-out, it needs compromise quickly before it’s too late.
