With the possibility of a meeting between President Trump and his Chinese counterpart looking increasingly uncertain, a US delegation arrived in Beijing on Monday for another round of trade talks after meetings late last month failed to produce a deal, and instead produced only conflicting reports about whether any substantive progress had been made.
An editor from China's English-language Global Times confirmed that talks between the "mid-level" US delegation, led by Deputy Trade Representative Jeffrey Gerrish, and the Chinese delegation, led by Vice Premier Liu He, who met with President Trump in the Oval Office last month, had started in Beijing.
The new round of China-US trade talks is underway in Beijing. Chinese Vice-Premier Liu He appears at the negotiation site, seen from this photo. pic.twitter.com/ABPbf2hOBj— Hu Xijin 胡锡进 (@HuXijin_GT) February 11, 2019
In addition to Gerrish, officials from the agriculture, energy and commerce departments are participating in the talks. While preliminary talks began on Monday, Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing on Thursday for the main event, according to AFP.
They will be joined by David Malpass, former Bear Stearns chief economist and President Trump's nominee to lead the World Bank.
Trump said after the last round of talks that no final deal would be reached before he and President Xi had sat down for talks, which would probably take place in Asia. However, the president later confirmed that no talks had been scheduled before the March 1 deadline, suggesting that the administration will either need to move on the next round of punitive tariffs, or push back a deadline it had once touted as immovable. Axios reported last night that Trump's advisors discussed holding a summit with Xi at Mar-a-Lago next month, which suggests that a delay might be possible. Other locations have also reportedly been discussed.
In a Monday note, UBS laconically noted that the talks will actually involve three sides: The US moderates (led by Mnuchin), the US hardliners (led by Lighthizer), and the Chinese.
"High level" trade talks between the US and China are to take place in Beijing. Three sides will be represented. Vice-Premier Li represents China. Trade Representative Lighthizer represents the US hardliners. Treasury Secretary Mnuchin represents the US moderates. Markets do not like trade taxes (as they are effectively a tax on equities), so will likely overreact to the newsflow.
As the path to a deal looks murkier by the day, analysts at BMO warned that an extension of the March 1 deadline is, at this point, likely the best possible outcome for markets. If the negotiations for USMCA are any guide, it's likely that a deal with China could take the better part of this year to achieve - if not longer.
Suffice it to say that we have long been sceptics on a successful conclusion on the U.S./China file. Consider, for example, the painful NAFTA negotiations: In that case, we had a perfectly good agreement to begin with, a moderate bilateral imbalance (between the U.S. and Mexico), and generally positive relationships between the three, and it took more than a year of hard bargaining. In this case, we have no current deal, a massive bilateral imbalance, the U.S. aiming for structural changes, and two adversaries at the table. Simply, there is no way that a full-meal deal can be reached in a short period of time. Whatever unfolds in the next three weeks, one would suspect that this issue will hover over markets for many, many months to come.
And with fears of slowing global growth and earnings nearly snapping the market's winning streak last week, we imagine investors will hang on to every trade-related word, particularly as evidence of a slowdown in global trade mounts, and investors look for something - anything - to offer a more optimistic view on global growth.