Trade-Deal Narrative Shattered: White House Again Threatens To Walk Away From The Table

Though it was entirely ignored by the market, the latest US-China trade-deal headline, which hit late last night, shortly before Robert Lighthizer and Steve Mnuchin were set to leave for Beijing to begin what was supposed to be the 'final' round of talks, offers what has become an increasingly rare dose of pessimism right in the Bloomberg headline: With 'significant issues' still unresolved (despite Larry Kudlow's assurances that he was 'cautiously optimistic' about a deal breakthrough), President Trump is once again threatening to walk away "if he isn't satisfied with how talks are progressing."

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According to a White House statement, this week’s talks “will cover trade issues including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases, and enforcement.”

After this week's round of talks wraps up, Chinese Vice Premier Liu He will lead a delegation to Washington for talks beginning on May 8. Reports last week suggested that Washington and Beijing had been hoping to announce a tentative deal, and a date for a signing summit between President Trump and Xi Jinping, following the close of last week's talks.

Though both China and the US recently reported better than expected Q1 growth (though the data underlying the headline weren't quite so rosy, and some have raised questions about 'fake growth', while the pickup in China was likely driven by one of the biggest credit injections on record), gauges of global trade have showed a sharp drop off since the beginning of the year.

Expressing dissatisfaction with Beijing's willingness to compromise on issues like IP protections (Beijing has reportedly rankled at furhter compromise after passing a law purportedly banning forced technology transfers) and market access, Washington kept China on a "priority watch list" of nations that don’t adequately protect IP rights, according to the annual report of the USTR’s office on IP practices around the world.

Meanwhile, during a speech to 40 world leaders at Beijing's annual "Belt & Road Initiative" conference, Xi promised to scale back Beijing's 'debt trap diplomacy' and also offered some positive comments about the trade deal.

However, with his job possibly on the line, Mnuchin hasn't given up on the sunny rhetoric. During an appearance at the Milken conference on Sunday, he said the negotiations were nearing their 'final laps', though he declined to say whether the talks would be wrapped up by June.

Mr. Mnuchin, one of President Trump’s lead negotiators, said that while the two sides are closer to an agreement, more work remains to be done, and that the talks are nearing a point where they would either produce a deal or end with no agreement, according to the New York Times.

"We’re getting into the final laps," Mr. Mnuchin said in an interview on the sideline of the Milken Institute Global Conference in Los Angeles.

"I think both sides have a desire to reach an agreement," Mr. Mnuchin said. "We’ve made a lot of progress."

Though he did acknowledge that there are some "significant issues that remain open."