Market Drop Prompts Trump To Offer China A Trade War "Olive Branch"

One day after the market tanked followed media reports that the Trump administration would pursue new initiatives to limit Chinese investments in US tech industries, on Tuesday the president suggested that he will ease off demands for such new restrictions, and will rely instead on a 1988 law being updated by Congress that authorizes the government to review foreign investments for national security problems.

Speaking to reporters at the White House, Trump said that “we have the greatest technology in the world, people come and steal it. We have to protect that and that can be done through CFIUS,” or the Committee on Foreign Investment in the U.S., which traditionally has screened foreign investments to see whether they endanger national security.

Trump also said that the recent WSJ article reporting that the administration was planning two further initiatives, in addition to CFIUS, to prevent Beijing from obtaining advanced U.S. technology, “a bad leak…probably just made up.”

Why is this stated policy important? Because according to the WSJ it would represent a potential "olive branch" for Trump in the escalating trade war with China, and a signal that the US is willing to break the tit-for-tat escalation:

If Mr. Trump’s decision holds through June 30, when the new policies are scheduled to be announced, it would represent a significant backing away from threats the president has made against China and a possible olive branch to Beijing before the July 6 impositon of tariffs on $34 billion of Chinese goods.

Meanwhile, lawmakers who have worked on a CFIUS reform bill have also been arguing in administration meetings that additional investment restrictions weren’t necessary given changes being made to CFIUS.

Separately, the report notes that relying mainly on CFIUS — if that is the final decision — would be a big victory for Treasury Secretary Steven Mnuchin, National Economic Council Director Larry Kudlow and others who have tried to tamp down the burgeoning trade battle with China.

It would also mark the end, for now, of the ascendancy of the so-called nationalist wing represented by White House trade adviser Peter Navarro and U.S. Trade Representative Robert Lighthizer. The two camps have jockeyed for power for months over the China issue and the battle is sure to continue.

As for the punchline, here is the WSJ's explanation what prompted the concession by Trjmp:

Industry lobbyists and China experts who follow the issue closely attribute the shift to recent declines in the stock market and to U.S. companies getting battered by tariffs in U.S. trade battles with the European Union, Canada, Mexico and China.

Whether or not that is accurate remains to be seen, and may need another sharp drop in the S&P to be validated. It would algo suggest that if China were to sell enough stocks from its FX reserve account, it could effectively run US foreign policy.