Could an end to the trade war with China be near? The highest level negotiations thus far since the two countries started lobbing full-scale tariffs at each other will take place tomorrow. Donald Trump announced a meeting with China’s Vice Premier Liu He on Twitter, but suggested he might not be all that eager to cut a deal. China has also sounded less than positive about the potential for a breakthrough:
Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House.
— Donald J. Trump (@realDonaldTrump) October 10, 2019
The U.S. and China have begun their principal-level negotiations in Washington on Thursday. Trump’s comment about a meeting with Liu contrasted with a report from the South China Morning Post that said the two sides made no progress in deputy-level trade talks this week and Liu will cut his visit short.
Signs point to a potential change of direction. Rather than reach one overall settlement, the two countries might decide to make a series of targeted pacts where they can find agreement on trade issues:
Bloomberg News reported overnight that the White House is working up a partial deal to suspend next week’s tariff increase in exchange for a currency pact. The New York Times also reported that the Trump administration is grant licenses for some U.S. companies to sell nonsensitive supplies to Chinese telecom giant Huawei.
A deal on currency manipulation and Huawei would appear to be a balanced approach to each country’s interests and leverage. That could unlock other parts of a broader set of agreements down the road as a confidence builder. It’s not a bad place to start, but it doesn’t dig deeply into the US’ core issues of market access and intellectual-property protection, at least not yet.
Even before Trump’s tweet, rumors had floated about a potential trade deal with China. The Washington Post noted that investors got bullish yesterday afternoon after those rumors began to circulate, mainly leveraged off of the Bloomberg report. The Post also cast some doubt about Trump’s reluctance to deal:
Whether these escalating problems can be resolved during two days of talks is unclear, but the prolonged trade war has shown growing signs that it is causing problems for the economies in both countries. The Fed released the “minutes” of its September meeting on Wednesday, and the word “trade” appeared in the discussion 28 times. It said, among other things, that “trade policy concerns continued to weigh on firms’ investment decisions,” a sign that companies were cutting back while they await a resolution of the White House standoff with China.
Also Wednesday, the Bureau of Labor Statistics reported that the number of new job openings had fallen to its lowest level since March 2018. The labor market has cooled a bit this year but it has remained relatively strong. Any sign of weakening heading into the 2020 election could create problems for the White House.
The labor market has cooled considerably, although job losses have not increased — yet. One has to go back a full year to find a monthly jobs report where additions significantly increase past the maintenance level needed for population growth. Last month, wages stagnated for the first time in a couple of years, which is another indicator of a job-market stall on the horizon. Trump needs an economy shifting back into high gear well ahead of the election, and most certainly won’t survive a recession or even a significant period of stagnation.
So yes, Trump needs a deal, but it can’t just be any deal. He will have to show significant wins now, thanks to the length of the current trade war and the damage it’s done to the agricultural sector especially. Farmers need to see immediate and significant benefits to keep them on board the Trump train.
Under normal circumstances, the presence of Liu and Trump at the bargaining table would indicate some sort of agreement has already been reached. That may not be true with Trump, who likes to do the negotiating himself, but it’s at least an indication that enough progress has been made for Trump to insert himself into the process.