"The Stakes Couldn't Be Higher": Trump, Xi "Navigate Minefield" At First Summit

Tyler Durden's picture

Today’s China-U.S. summit meeting is an event that could also have enormous implications - in both directions. As Bloomberg's Richard Breslow notes, one can't help but be intrigued by the fact that while everyone is looking at the S&P 500, this morning the Shanghai composite traded at its highest level of the year.

Notably, the Dollar relationship to China's currency relative to the rest of the world's relationship to the Yuan is following a very similar pattern to last year's 'Shanghai Accord' - stronger Yuan vs USD as China weakens its basket against all majors. Fooling Trump et al. that China is 'not' devaluing?

There doesn't appear to be any scheduled press conferences just yet but, as Deutsche Bank's Jim Reid notes, it’s worth keeping an eye on the headlines as the next two days progress. Clearly North Korea will be a subject near to the top of the agenda. Importantly though the meeting is the start of a new China-US bilateral relationship so the rhetoric which follows from the leaders will be closely scrutinised and debated one would imagine.

The stage is set for a carefully choreographed dinners with family and displays of bonhomie, but beneath the facade runs a wary, almost palpable, anxiety -- as the men face a make or break moment. As AFP reports, Xi is arriving at the resort with a gift-basket of "tweetable deliverables", sources say, peace offerings on Trump's signature issues -- trade and jobs -- that he hopes will smooth over a relationship that began on shaky ground following disagreements over Taiwan. In return, he hopes to get assurances from Trump on American sales of arms to the island, as well as trade. But what Trump wants is less clear.

Although his comments during a Fox New interview this morning offer some visibility:


So, what's at stake as President Trump sits down with China’s Xi?

Greg Wright (via The Conversation) explains...

The U.S. and China together account for one-third of global economic output, so there is a lot at stake as President Donald Trump meets with his Chinese counterpart Xi Jinping, not least the fate of the world economy over the next few years.

And it is precisely the magnitude of the stakes involved that has led some observers to assume that both countries will play it safe and focus on the areas of the relationship that are “win-win” relative to the areas that are more likely to produce conflict.

But there is no guarantee that this will happen. In fact, Trump may have already dealt himself a poor hand thanks to his past rhetoric on trade, which has heightened the political risk that he faces in negotiating with Xi. Perhaps more worryingly, Trump’s focus on achieving short-term victories could also tip the balance against the U.S.

At the end of the day the two countries not only drive the world economy but also rely critically on one another, a fact that should moderate the decisions of these two strong-willed leaders. In fact, my research (with fellow economists Giovanni Peri and Gianmarco Ottaviano) has highlighted the economic risks of miscalculating on trade deals, particularly those with developing countries.

National Economic Council Director Gary Cohn, right, argues trade is important to economic growth.

A tricky trade balance

Trump has a difficult political balancing act to maintain.

On the one hand, 85 percent of Republicans believe that trade has cost more U.S. jobs than it has created. This group will presumably expect results in raising barriers to U.S. imports, particularly those from China. In fact, there is perhaps no other issue more salient to Trump’s base than the perceived harm done to U.S. workers due to international trade, and Trump has been unequivocal in his promises to scale back trade agreements, from NAFTA to the now-rejected Trans-Pacific Partnership.

On the other hand, Trump’s more moderate advisers, such as Gary Cohn, head of the National Economic Council, have likely cautioned him that trade is ultimately good for economic growth. And any disruption would be bad both for the U.S. and for Trump’s political future.

Having repeatedly (and unrealistically) promised at least 4 percent to 5 percent annual economic growth, Trump must be careful not to inadvertently push the economy into a ditch by abandoning the free trade principles that have made the U.S. one of the richest countries in the world.

Who will ‘win’?

Another potential pitfall for Trump is that the search for a perceived “victory” in the negotiations – something the president typically prizes above all else – is actually more likely to favor Xi.

This is because Xi’s grip on power is such that he does not need headline-grabbing wins to the extent that Trump does. Instead, he can try to extract more substantive concessions behind the scenes. This suggests that a possible outcome is that the status quo will be effectively maintained. For instance, Xi may be able to walk away with a win by simply avoiding a trade war while also obtaining an implicit promise that the U.S. will look the other way on human rights issues and Chinese regional expansion.

This isn’t to say that Trump does not have leverage – his campaign promise to raise import tariffs on China to 45 percent would be a serious blow to the Chinese economy. And of course the U.S. can always flex its political and military strength in opposition to Chinese interests. But perhaps most unnerving for the Chinese is Trump’s unpredictability which, despite its downsides, keeps his counterparts off balance.

The concern is that Trump may use his leverage in order to obtain “tweetable” victories that do not amount to much. For instance, a likely outcome is that Trump obtains promises of future investments in the U.S. of several billions of dollars. In fact, Chinese and U.S. commentators have suggested that these investments may come as part of a larger U.S. infrastructure program. However, as with other investments that Trump has taken credit for, most of these would be made in any case (China invested $45 billion in the U.S. last year) and so come at little cost to the Chinese.

National Trade Council adviser Peter Navarro, right, views trade deficits as a key economic metric.

A misguided focus on trade deficits

But as with the imposition of trade barriers, Chinese investments do not come without political risk. In this case, it is the Trump administration’s obsession with the trade deficit in goods as the key metric by which it views success or failure on trade that will make life harder.

The trade deficit with China – US$347 billion in 2016 – is simply the difference between U.S. exports to China and U.S. imports from China, and this value fluctuates for a variety of reasons. When the U.S. runs a trade deficit it means that, on net, the U.S. is sending dollars to China in exchange for Chinese goods. As a simple fact of accounting, those dollars must then end up back in the U.S. as investments in U.S. assets. So investments in U.S. assets are the flip side of a trade deficit.

As a result, inviting greater Chinese investment in U.S. assets will necessarily increase the trade deficit with China. While most economists believe that the trade deficit is a poor measure of the success of a country in the world economy, National Trade Council Director Peter Navarro has repeatedly pressed the case for trade deficits as a proxy for the overall health of the U.S. economy, as has Trump.

And so, however inadvisable it may be to focus on the trade deficit, Trump is sure to pay a political price if it were to grow over the course of his tenure.

Forging a bond before the clashes ahead

In the end, the most consequential outcome of Xi’s visit may be the extent to which a bond is forged between the two leaders.

This is because Trump tends to personalize policy choices, and many of the most important issues on which the U.S. and China will need to find common ground will arise over the next few months.

For instance, although Trump has not yet formally labeled China as a currency manipulator (which he promised to do on “day one”), later in the spring the Treasury Department will publish its analysis of international currencies and may choose to place that label on China. While the Chinese would likely simply ignore such a designation, it would require the U.S. to take some form of punitive action if negotiations with China did not resolve the dispute.

But, of course, this may be small beer compared with the more pressing geopolitical issues that will be in play. These include dealing with North Korea, whether or not to confront internal repression within China and the threat of Chinese regional expansion. It would not be surprising to find that American cooperation on these fronts comes with a price tag denominated in U.S. jobs.

Finally, it is worth noting that reducing the level of trade with China will do little to help U.S. workers. This is something that nearly all economists agree on, but that politicians rarely embrace. This is because while the economy can be easily cured of a proliferation of trade agreements by simply withdrawing from, or rewriting, those accords, there is no easy cure for the proliferation of new technologies, which are the real culprits in the decline of U.S. industrial production.

And so, since trade is a policy lever that can be easily pulled, politicians inevitably rush to do so.

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FrozenGoodz's picture

Dum Gai


Hu Yu Hai Ding

ACP's picture

Trump's icebreaker:

So how do Chinese parents name their kids?

Throw a bunch of pots and pans down the stairs!

SmackDaddy's picture

Xi:  You guys had a good run- hope your boomer generation enjoyed having three Chinese slaves a piece to supply them with plastic crap - the bill is in the mail.  We're enjoying watching the Jews demographically erase your grandchildren.

JRobby's picture

Trump will do the right thing. In any negotiation, some ground is given.

OF COURSE, The MSM will label it a total Fail. When people get to the point that they can not see the MSM's actions as the problem, civil war is not far off. Not far off at all. We have a base of citizens that see other citizens as an enemy they can not negotiate with.

How many outraged snowflakes have multiple firearms?

Stuck on Zero's picture

Who wrote this piece anyway:

Trump must be careful not to inadvertently push the economy into a ditch by abandoning the free trade principles that have made the U.S. one of the richest countries in the world.

The US became rich by erecting huge trade barriers, just like China, and building our own products. We are becoming poor by opening the borders to countries that have erected massive trade barriers.

Ghost of Porky's picture

Trump: "How do you like Mar Lago?"

Xi: "Me rikey!"

Laowei Gweilo's picture

most Chinese don't have problems with Ls... that's mostly Japanese some Koreans


something like 1/3rd of ALL most common names AND words in Chinese have hard Ls lol


if they do have problems with Ls, it's usually more that they underpronounce the L... e.g. l-ee or -ee instead of LL-ee. the whole 'R' is escpecially a Japanese thing because Rs and Ls are different in Japanese than Mandarin.

thebigunit's picture

I think Trump understands capitalism.  Worry about something else.

Trump must be careful not to inadvertently push the economy into a ditch by abandoning the free trade principles that have made the U.S. one of the richest countries in the world.

Trump will negotiate to achieve the optimum capitalist outcome that he can.

ZH Snob's picture

Trump has asked if he could meet this General Tso. 

Troll Magnet's picture

Tso not interested. He's a chicken.

jomama's picture

Bully in a China shop.

X- x3's picture

More like an Orange Elephant in a China Shop.

"Hey Buddy, watch out for your Trun[k]."

Much more dangerous than pink and white ones.



Dominus Ludificatio's picture

Someday the Trump cartoon character will be the yuugest in history. May even include theme parks bearing his name.

Stan522's picture

I'm looking forward to these talks... Perhaps we will see the difference between placating (obama) and a real negotiator (Trump).

And finally a president who calls out North Korea like he should.....

MuffDiver69's picture

Yep...The fact XI is going to his home is good enough for me...Nothing substantial gets done in DC during these visits...

jimymac's picture

You can't fix 50 years of stupid easily, to many mindfields. Both men come from the Art of ......, both want cooperation on levels that grow the peoples incomes. Don't think is small timeframes. Here comes "The Fourth Turning". 

crossroaddemon's picture

Oh yes because NK is such a HUGE fucking threat... wake up man.

Stan522's picture

Hey goober... perhaps you're OK with Kim lobbing long range missiles at Japan and Hawaii with the intent of hitting or West Coast, but I am not. Perhaps you were OK when Bill Clinton signed a treaty that all but guaranteed Kim's daddy got the nukes, but I am not. Perhaps you are OK with decades of placating, payoff's and concessions that keeps perpetuating bad behavior, but I am not.

You go role over like a good lib pacifist dog you are.....

crossroaddemon's picture

Even if they have the delivery systems NK is not going to take an action that is going to get the whole country turned to glass. You know why there's such a concerted effort to demonize small countries who are developing nukes? It's not because they're likely to use them. It's because having nukes means you have to be taken seriously at the negotiating table.

Stan522's picture

Besides your placating strategy, there also is dealing with this idiot from a position of strength. Promising to create craters of his palaces and perhaps doing it to one of them will get his attention. However, I would prefer China stepping on him first. No POTUS has done this before. It's always been giving in. Every 2-3 years after money is given, or food, is provided Kim has perked up and started blustering again. 

crossroaddemon's picture

So let him bluster. That's all he's going to do.

silverer's picture

Dear Mr. President,
Good luck with this. I'm sure you've been fed misleading information from your inner circle to taint any outcome in favor of the Deep State and the military industrial complex. You'd be better off randomly picking social security numbers from middle class taxpayers to hire as your advisors.

chunga's picture

A quick coffee cup tour of alt-news sites reveals the recent war-mongering fake news about Syria is very unpopular among the deplorables, and everyone.

Assad: Terrorists are fighting for Israel


Yediot cited an interview with a Croatian newspaper in which Al-Assad explained, "Israel is a partner of Turkey, the United States, Britain, Saudi Arabia, Qatar and others. This war broke out with new tools and, in effect, our victory over the terrorists in the country, who are fighting for Israel, is a victory over all these countries together. Israel is trying to help terrorists wherever the Syrian army is advancing and attacking in one way or another in order to stop the army's momentum."

X- x3's picture

The real problem for *Americans*, Deplorables & Everyone else is......

......dots.....dots......connecting the dots......is,

Donald Trump has sold his adult children to the ((( ))), he loooooovvvveeessss Izrael, and he's best buddies with Nutandyahoo,

Besides being shadowed 24-7 by the undertaker-dressed (((Jared Kushner))).

Talking about 'fake news' & Syria.

At the rate he's going he's gonna get us all killed real soon.

The QUESTION that should be being asked now, "Who's directing Trump into multiple Global Conflicts in his first 100-Days?"

& of course, Qui Bono?

For me it's clear. The answer is ((())).....


crossroaddemon's picture

I'm sure that's what you'd like to believe, but the truth is probably closer to he knows exactly what is going on and is complicit.

A. Boaty's picture

I'll go with the country whose leader has the best hairstyle.

ffed's picture

More Lies on top of lies. I still can't believe I bothered voting.  Fool me once....

CPL's picture

He's going to export more jobs overseas, and trade meeting is closer to talking about the massive amount of money they owe China since China loaned the USA a tonne of cash.  Now that China is in arrears it means they are scrambling for method to stop China from liquidating their entire business position.

This meeting with be rather lopsided btw.  The NATO debt situation is about to amplify the money printing and speed up the return to the open slave trade within the borders of the USA.

Deep Snorkeler's picture

Class Consciousness a Marxist Analysis

The vast hordes of overfed and unread,

Love TV in bed.

Manly Trump is their leader,

He gropes beaver.

The President possesses the veet-Oh,

I'll never go to Mar-a-Lag-Oh.


spanish inquisition's picture

The US hasn't treated anyone fairly since "It's our currency but your problem" was uttered, and well before that... We are swinging a currency stick and attacking everything like the unchallenged neighborhood bully and the big quiet Chinese kid that grew 6" over the summer has had about enough.

It may be too late already to avert the last war. Too many psychotic people are in high places thinking they can win a nuke war. The first step is for the world is to dedollarize as fast as possible and have the Euro collapses at the same time.

The question is then, what will happen when you corner an injured Rothschild et al?  Hopefully, survival instinct will win over suicidal vengeance.

GlassHouse101's picture

China needs to roll over and squash N. Korea, and their nuclear program. 

MuffDiver69's picture

I think Obama was just wrapping up his apology tour at this point in his scam job presidency...At the least this is good the Chinese president is going to his home and not some phony DC sideshow shit...Mattis and the military folk will get good face time as well....

SmilinJoeFizzion's picture

The Chinese food delivery driver is going to get a UUUUUUUge tip

Xena fobe's picture

Xi gets nothing.  Go to hell China.

lester1's picture

China must drop all tariffs and taxes in US made goods immediately, or else we slap them with equal duties !!

highwaytoserfdom's picture

gosh so happy on golf course not Johnny Chan bought and paid  for White House

novictim's picture

Trump's plan to Make America Great Again requires one action: 

Imposing Trade Tariffs.  MAGA =  Tariffs.  Yet that requires a USA Industrial Council to pinpoint what tariffs for what industries and how much of a tariff on a year by year basis. 

Where is this USA Industrial Council?  Where are their Tariff Proposals?  If we don't see this under President Trump then we should doubt his commitment to MAGA.

The USA runs >$600Billion trade deficits with Asia and China. What is there to discuss? The USA has the Consumers that China and Asia need.  Their is nothing to negotiate.  China and the Asian Nations will not want to change the status quo yet the USA has to bring back industry. 

The only leverage that Asia has on the USA is bribes to Congress. 

President Trump, you are losing us here.  We are starting to question if you actually have the balls to MAGA.  Firing Mike Flynn right out of the gate was a cuck move, Mr. President.  We are going to have to hear the right words from you regarding Tariffs and we are going to need to hear this soon, perhaps during the Xi visit.

crossroaddemon's picture

Serious question: with industry quickly becoming automated, what do you expect tariffs to achieve other than sending the cost of goods to the moon? It's not going to add jobs in significant numbers. So where's the upside?

fbazzrea's picture

The USA has the Consumers that China and Asia need.

once the markets crash and the US enters a probable decade-long deflationary depression, our consuming economy will be primarily MIA. Xi knows this. we don't have much leverage for negotiations. so what do we have that China wants? infrastructure, real estate, international prestige... and a couple trillion dollars repayment on their bond holdings. and maybe some more cheap gold.


ToSoft4Truth's picture

America is going to get a Great trade deal and Great manufactured from Great places..  Ivan(ka) manufacturers his/her clothing in a Great place.  Who wouldn't want clothing from a Great place?  You're going to see Great things.

JustPastPeacefield's picture

"... trade principles that have made the U.S. one of the richest countries in the world."


Who got rich? And who got poor? Ask middle America. 

silverer's picture

These two leaders have an amazing resemblance.

IranContra's picture

History For Dummies

1. Before Dubya: Luciferians try to create Greater Israel

2. Dubya + Obama: Luciferians switch to trying to create Greater Iran

3. Trump: Small Israel, Small Iran

Russia and China agree with Trump on #3. No wars necessary. Iran and Israel have to comply.

IranContra's picture

Remember this:

"Iran overran the village and its small Iraqi garrison on 15 March 1988. The gassing took place on 16 March and onwards... "The great majority of the victims seen by reporters and other observers who attended the scene were blue in their extremities. That means that they were killed by a blood agent, probably either cyanogens chloride or hydrogen cyanide. Iraq never used and lacked any capacity to produce these chemicals. But the Iranians did deploy them. Therefore the Iranians killed the Kurds."

Iran Gassed the Kurds in 1988

PitBullsRule's picture

The stakes aren't high, thats typical deplorable distortion of reality.  We aren't at war with China, we have been peacefully trading with China for decades.  They have loaned us Trillions of dollars.  The stakes aren't high at all.  

The only risk is that imbecile we elected to represent us, will fuck something up.  Thats the risk, because he's such an asshole, and  we know he probably will say something really stupid.  The only thing at stake is, how much more pathetic we will look after that idiot embarasses us in front of China.

Seasmoke's picture

Ho Li Fuk. Wi Tu Lo. 

Robert Trip's picture

On a more serious note Barry Manilow came out.

Who knew?

JustPastPeacefield's picture

Shocked! I had flashbacks to when I found out Liberace was gay. Back when he played the bathhouses with Bette Midler, I just figured he was an artistic type of guy. I think I'll go out and fuck a broad today just to make the world seem right again. Oh wait, I'm gay. Strike that.

Now please don't tell me John Travolta is gay, cuz I just won't believe it. I love the line in Lost in Translation when Bill Murray's character is talking to the barback and the conversation is joined midway, " ... I didn't care that he was gay, it's just that his acting was terrible." Or something like that. Funny. And most certainly an inside joke. Travolta, Cruise? 

Now, back to the news.

J. Peasemold Gruntfuttock's picture


There are skeletons in many 'closets' that sometimes don't make it out so quickly.

Especially when in flagrante delicto is observed in far flung countries and earlier decades.

You're the one that I want...no...YOU'RE the one that I want...ooh ooh ooh...and clinch.


J. Peasemold Gruntfuttock

J. Peasemold Gruntfuttock's picture

Who Knew?

Probably his husband Garry Kief.


J. Peasemold Gruntfuttock