Kudlow: Trade Talks With China Haven't Yielded Any Progress

Equity traders have apparently given up on tracking the conflicting signals emanating from the White House ahead of President Trump's long-anticipated meeting with Xi Jinping later this week, instead clinging to the best case scenario - that the talks will hopefully forge a "pathway" to an eventual deal. Few analysts expect any meaningful progress to be made in Buenos Aires.

And while the administration has insisted that it remains "open" to a deal with China, Trump stepped up the rhetoric last night when he said he plans to move ahead with a planned tariff increase in January regardless of what happens in BA - and that, if talks go badly, he wouldn't hesitate to slap tariffs on the remaining $267 billion in Chinese goods flowing into the US economy. Reports circulated earlier claimed that Trump's comments angered some of the most senior officials in his administration. But on Tuesday afternoon, his chief economic advisor Larry Kudlow parroted the president's line during a talk with reporters - reaffirming that, if things don't work out during the summit meeting, Trump will move ahead. So far, things aren't looking good. As Kudlow pointed out, negotiations in the run up to the talks haven't yielded any progress, and unless something changes, the administration will move ahead with the next phase of tariffs.

Kudlow

"Things have been moving very slowly between the two countries," Kudlow said, adding that it was up to Xi to come up with new ideas to break the deadlock.

Echoing a report from the US Trade Representative published earlier this month, Kudlow said there hasn't been much of a change in China's approach.

"We can’t find much change in their approach," Mr Kudlow told reporters. "President Xi may have a lot more to say in the bilateral [with Mr Trump], I hope he does by the way, I think we all hope he does...but at the moment, we don‘t see it."

Still, Kudlow believes there's a "good possibility" that a deal could eventually be made, assuming that China becomes willing to accede to some of the US's demands.

Kudlow reiterated the oft-touted narrative that:

"Our economy is in good shape, China's is not"

Which is a problem as based on Citi's Macro Surprise indices, that is no longer true:

But regardless of what Xi does, the US will hold out, Kudlow said, because "we are in far better shape to weather this than the Chinese are" - echoing one of Trump's most oft-repeated lines.

"If China will come to the table with some new ideas and some new cooperation...there's a possibility that we can make a deal.

Kudlow's comments suggest a shift in the days before the deal from a "good cop, bad cop" approach where trade hawks like Navarro and Lighthizer would present the hard line, while Kudlow and Treasury Secretary Steven Mnuchin would offer a slightly softer approach. Now, it appears the administration has united in presenting a hard line.

We'll see if it works.

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