April 5, 2019
Just in case futures needed a little more “trade optimism” to get them within inches of the all time high, just after the close Trump said that a “very monumental” trade deal is coming… just not quite yet.
“We have a ways to go,” Trump told reporters at a meeting with Chinese Vice Premier Liu He at the White House. “We are rounding the turn” and while a deal to end the trade war between the U.S. and China isn’t yet ready, a “very monumental” agreement may be announced in about about a month as “talks may continue for 4 weeks, and another 2 after that.” It wasn’t clear how much longer after that talks would continue, but markets would be delighted to keep rising every single day on fresh daily optimism of trade optimism being uttered by the White House day after day after day.
— CBS News (@CBSNews) April 4, 2019
Trump was not in danger of running out of superlatives, earlier in the day saying that “we’re very well-along on the deal. It’s a very complex deal. It’s a very big deal. It’s one of the biggest deals ever made. Maybe the biggest deal ever made.”
Liu met with the president after two days of talks between Chinese and American trade negotiators; contrary to earlier rumors that sent stocks spiking into the close, Trump didn’t announce a summit with Chinese President Xi Jinping to finish the deal.
“If we have a deal, then we’ll have a summit,” Trump said.
Trump said intellectual property protection, certain tariffs and enforcement of the deal are all outstanding issues that haven’t been resolved. “We’ve agreed to far more than we have left to agree to,” he said. “This is the granddaddy of them all.”
Trump also said he would discuss tariffs with Liu in their meeting but didn’t elaborate.
As Bloomberg reported earlier, the draft of an agreement to end a nearly yearlong trade war would give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation.
Pouring some cold water on algo “optimism”, earlier U.S. Trade Rep Robert Lighthizer said that there were still major issues to resolve in the agreement, while uber trade hawk Peter Navarro said that “the last mile of the marathon is actually the longest and the hardest.”
U.S. stocks rose earlier on Thursday, and pretty much every other day in the past 3 months, on reports the two sides were making progress.
As we reported yesterday, under the proposed agreement, China would commit by 2025 to buy more U.S. commodities, including soybeans and energy products, and allow 100 percent foreign ownership for American companies operating in China. Those would be binding pledges that could trigger U.S. retaliation if unfulfilled, Bloomberg reported.
Other non-binding promises China has offered to implement by 2029 wouldn’t be tied to potential U.S. retaliation. As Bloomberg adds, the limited scope and time frame of the deal raises questions about whether it would reshape the longer-term economic relationship, rather than simply serve as a political win for Trump ahead of his re-election campaign.
Putting the entire farce in context best, was Rabobank’s Michael Every, whose summery we presented earlier:
… there is still no set date for an official meet-up between Trump and President Xi, which would be seen by the market as the signal that a trade deal is imminent. Bloomberg is reporting that under the proposed agreement, China would commit by 2025 to buy more U.S. commodities, including soybeans and energy products, and allow 100 percent foreign ownership for U.S. companies operating in China. If China would not keep to this pledge, it would trigger retaliation from the U.S. On top of that, there would also be non-binding promises China has offered to implement by 2029 wouldn’t be tied to potential U.S. retaliation.
Altogether – and we note that there is still very little detail on substance – this still sounds like a weak compromise that would give both sides a reason to claim victory in the short term, but that could easily break down as time progresses, as getting China to commit to tough and painful reforms remains elusive in our view.
Meanwhile, the latest Chinese spin on the trade deal comes from the editor in chief of the Global Times.
The more trade talks stretch to the final stage, the fiercer psychological contention becomes. At the beginning, US side held psychological advantage, now it is reversed. China pulled through the toughest time in the past year, proving the US can only exert limited harm on China.
— Hu Xijin 胡锡进 (@HuXijin_GT) April 4, 2019
This article was posted: Friday, April 5, 2019 at 6:46 am