Key Points

  • Statements released by the United States and China were consistent in describing a truce; but inconsistent in their details.
  • The hit to the U.S. economy has been small so far; but if the additional tariffs were to be implemented, the haircut to GDP becomes more severe.
  • Trade is but only one area of tensions between the United States and China—keeping the temperature down in the coming weeks will be crucial.

The stock market is in a festive mood as December gets underway. What started as a post-correction rally courtesy of more dovish statements from Federal Reserve Chairman Jerome Powell last week; got an additional spark from the post-dinner announcements from Presidents Trump and Xi at the G20 meeting over the weekend.

A truce was called by the two leaders, with tariffs paused at their current levels over the next 90 days while negotiators try to craft longer-term solutions to the two sides’ conflicts and disagreements. This is worth a cheer in the short-term, but some enthusiasm curbing may be in order beyond the stated time frame for negotiations. There was little in the two sides’ statements that would suggest the longer-term structural aspects of the United States-China rivalry.

In fact, there was little in the two sides’ statements that were even consistent. Even the press conferences were held separately—there was no joint session to discuss the outcome of the leaders’ dinner, allowing each side to spin it their way. Hat tip to our friends at High Frequency Economics for highlighting the statements’ differences.

White House statement from Press Secretary Sarah Huckabee Sanders:
“President Trump has agreed that on January 2, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time.”

Xinhua, China’s state news agency:
“Chinese President Xi Jinping and his U.S. counterpart, Donald Trump, agreed here Saturday to continue the trade talks between the two countries and stop imposing new tariffs.”

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Sanders’ statement:
“China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial and other product from the United States to reduce the trade imbalance between our two counties. China has agreed to start purchasing agricultural product from our farmers immediately.” (Emphasis is mine, to highlight that there was not much in the way of an actual agreement on substance.)

Xinhua on details as presented by State Councillor Wang Yi:
“China will import more marketable products from the United States in efforts to gradually ease imbalances in two-way trade.” (Missing are the words “immediate,” “soybeans” and “agricultural products.”)

Sanders’ statement:
“President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.”

Xinhua‘s different take on China’s perspective:
“The two sides also agreed to open markets to each other...adding that China will, in the process of its further opening-up, work to gradually resolve the legitimate U.S. concerns.” (Emphasis is HFE’s.)

Sanders’ statement:
“Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.”

Wang’s different take as reported to China’s media:
“Terms of both sides will follow the guidance of the principled consensus reached between the two leaders, and step up negotiations toward the cancellation of all tariffs imposed this year so as to reach a specific mutually beneficial agreement at an early date.” (No mention of 90 days.)

As noted by Carl Weinberg at HFE, “China sees the next round of talks as aimed at ending existing tariffs, while the U.S. side sees them as aimed at unresolved trade issues. These are very different perspectives.”

Wang’s conclusion as to future contact:
“The two presidents agreed to keep in close touch with each other through visits, meetings, phone calls and correspondents to continue providing guidance for the bilateral ties.” (Sanders‘ statement had no reference to future contact.)

Looking ahead at “negotiations”

The Trump Administration’s key trade representatives—Robert Lighthizer and Peter Navarro—are seen as trade hardliners who are unlikely to walk into further negotiations with their tails between their legs. As noted by GavekalResearch, “the trade and national security hardliners in Washington are likely to keep ratcheting up the pressure on Beijing via investment restrictions, export controls, and perhaps limits on visas for Chinese students and workers in tech fields. If trade negotiations—for which no framework has yet been announced—go poorly, it’s possible the threat of tariffs could be revived next year.” (Emphasis is mine.)

In addition, “Xi Jinping made no concessions on key issues such as market access, forced technology transfer, subsidies for state firms and aggressive industrial policy. Instead Xi pledged to buy more U.S. goods (a promise he is always happy to make), ban exports of the opioid drug fentanyl (which he probably would have done without the threat of tariffs) and offered to reconsider the Qualcomm-NXP merger his regulators previously scuttles (probably a meaningless gesture, since Qualcomm has already paid a breakup fee, appointed a new CEO and moved on).”

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