Stalled Progress Raises Doubts About Prospects For US-China Trade Deal

Mere hours after WSJ reported that trade-deal negotiations had hit a snag over how to roll back restrictions on Huawei - something that President Trump reportedly promised President Xi as a precondition for restarting talks - Bloomberg is following up with its own story about how Trump and Xi are making slow progress, raising doubts about whether the differences between the two sides can ever be reconciled.


Last week, President Trump complained in a tweet that China wasn't buying the agricultural goods it promised.

And there's been no discernible change in the US government's treatment of Huawei, or its presence on a Commerce Department blacklist.

Sources close to Trump told Bloomberg that, with Trump already gearing up for his reelection campaign, the likelihood of a deal is looking increasingly remote. Earlier this week, Trump warned that he could still impose more tariffs on China if he wanted, even as Steven Mnuchin and Robert Lighthizer, the leaders of the US delegation, were preparing for talks with their Chinese counterparts.

In what sounds like a repeat of the confusion that followed the original trade truce in December, the two sides are reportedly still not on the same page about what exactly was agreed upon in Osaka. Beijing is apparently refusing to buy any American agricultural goods until restrictions on Huawei are lifted, and the US hasn't taken Huawei off the entities list. Steven Mnuchin has reportedly been calling CEOs of US companies and asking them to seek exemptions to the entities list restrictions, but whatever the hangup is with Huawei, it's not exactly clear.

And even if these two issues are resolved, there's still the task of forging a mutually agreeable deal. The two sides remain at odds over Washington’s demands for structural reforms, China’s economy and Beijing’s call for the US to remove all existing punitive tariffs on imports from China.

Plus, now that the campaign is a factor, Beijing has every reason to stay cautious (after all, there's a possibility that any progress could be erased should Trump lose), and Trump will soon become more preoccupied with optics - and walking away with anything short of the "great" deal he promised could create problems on that front.

If there's any upside for markets, it's that as long as there's no end in sight for trade talks, the central bank has a solid excuse to deliver the 50 bp rate cut later this month that would likely send US stocks to fresh all-time highs.