Trump raised expectations of a grand China trade deal but wholly underdelivered in his much-anticipated summit with Xi
William Pesek
US President Donald Trump touted the trade-war breakthrough with China’s Xi Jinping with predictable triumphalism. On Thursday, Trump gushed about an “amazing” meeting with Xi, where he agreed to cut China’s tariff to 47%. But the odds that posterity will concur are exceedingly low.
For one thing, there’s nothing “grand” about the bargain to which Trump and Xi are discussing in the loosest and vaguest terms possible. Specifics, targets, enforcement mechanisms and punishment for non-compliance will all be discussed by US and Chinese trade officials at a future date.
Nothing on the table, though, alters the mechanics of a US$659 billion trade relationship in any notable way. Face-saving agreements to throttle back on tariffs, buy more soybeans and increase the flow of rare-earth minerals are grand on some levels. But narrowing America’s trade deficit with China requires a wholesale remaking of commercial dynamics.
For another, myriad tripwires could — and likely will — return Trump and Xi to battle stations. Count the ways things could go awry: China depreciating the yuan; Trump depreciating the dollar; the US economy slowing sharply; either side failing to live up to a deal; domestic political troubles prompting either leader to lash out abroad.
“It’s good for the world’s top two largest economies to dial down tensions,” says Ting Lu, economist at Nomura Holdings, “but we believe the superpower rivalry will likely escalate in the future.” As such, he says, global investors are learning to embrace the new normal of “tension, escalation and truce.”
Economist Chang Shu at Bloomberg Economics says, “we expect the leaders to approve the deal, but whether it will bring lasting relief to markets is less clear — the new reality for US-China ties appears to be one of frequent ruptures and short-term fixes.”
Goldman Sachs economist Jan Hatzius adds that the “recent policy moves suggest a wider range of potential outcomes than appeared to be the case ahead of the last few key US-China meetings. The likely scenario seems to be that both sides pull back on the most aggressive policies and that talks lead to a further—and possibly indefinite—extension of the tariff escalation pause reached in May.”
Of Trump, Ali Wyne, senior US-China researcher at the International Crisis Group, notes that “he seems to think of Xi not as an avatar of imperial ambition, but rather as the head of an impressive rival business company.” This means the best-case scenario is for Trump and Xi to “leverage mutual vulnerability as a gateway to mutual restraint.”
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