Din­ner a chance for Trump and Xi to set­tle their beef

The Daily Telegraph - Business - - Business Comment - Garry White is chief in­vest­ment com­men­ta­tor at wealth man­ager Char­les Stan­ley

Don­ald Trump fa­mously loves a well-done steak gar­nished with tomato ketchup. So, Satur­day’s din­ner date with Chi­nese pres­i­dent Xi Jin­ping in Ar­gentina, a coun­try fa­mous for the qual­ity of its beef, is likely to be right up his street. This week­end’s G20 sum­mit in Buenos Aires has the theme of “build­ing con­sen­sus for fair and sus­tain­able de­vel­op­ment” and will have many photo op­por­tu­ni­ties for world lead­ers. But, for mar­kets, the only im­por­tant meet­ing is the Trump-Xi meal, as the two pow­er­ful lead­ers face off over the ta­ble in at­tempt to find some res­o­lu­tion to the dam­ag­ing trade war. But is any truce re­ally that likely?

Many mar­ket par­tic­i­pants had hoped that Pres­i­dent Trump would have come to a deal with China be­fore the midterm elec­tions. How­ever, this did not hap­pen. There was even an ac­cel­er­a­tion of ten­sions af­ter Vi­cePres­i­dent Mike Pence ac­cused China of “preda­tory” eco­nomic prac­tices, mil­i­tary ag­gres­sion in the South China Sea and of try­ing to un­der­mine Pres­i­dent Trump. The speech led some to de­clare the start of a “New Cold War”. How­ever, in the last few days there has been some op­ti­mism in mar­kets that a pos­i­tive form of words could be agreed this week­end. This fol­lowed com­ments from Larry Kud­low, the White House’s eco­nomic ad­viser, who noted the sum­mit of­fered “an op­por­tu­nity to break through what has been dis­ap­point­ing dis­cus­sions”. Satur­day’s talks are likely to in­volve al­leged Chi­nese theft of in­tel­lec­tual prop­erty, own­er­ship of Amer­i­can com­pa­nies in China and tar­iffs and non-tar­iff bar­ri­ers. This comes ahead of a dead­line set by the Trump ad­min­is­tra­tion for tar­iffs on more than $200bn (£157bn) of Chi­nese im­ports to jump to 25pc from 10pc next year.

Mr Kud­low is clearly play­ing the “good cop” role. As usual, Don­ald Trump took the po­si­tion of “bad cop” – warn­ing of dire con­se­quences should a deal not be reached. The pres­i­dent said he was con­sid­er­ing slap­ping a third round of tar­iffs on $267bn of Chi­nese goods if a deal could not be done – and that would in­clude tar­iffs on Ap­ple prod­ucts such as iPhones man­u­fac­tured in the Asian na­tion, de­spite the im­pact this would have on US con­sumers. China has al­ready made an of­fer with con­ces­sions, but Pres­i­dent Trump said it was not ac­cept­able. “It’s a pretty com­plete list, a lot of the things we asked for, but there are four or five things left off,” Pres­i­dent Trump said. “We’ll prob­a­bly get them, too.”

It is clear that both sides will need to com­pro­mise if a deal is to be agreed. So far, the dis­pute has not re­sulted in a sig­nif­i­cant amount of un­em­ploy­ment in ei­ther China or the US, but if it rum­bles on there could be se­ri­ous eco­nomic dam­age in terms of price rises and job losses. Walmart, Co­caCola and Gen­eral Mo­tors have al­ready warned they may be forced to raise their prices and soya bean farm­ers in the Mid­west had to be bailed out af­ter China slapped 25pc tar­iffs on their prod­uct in re­tal­i­a­tion. Crop prices fell to a 10-year low and the Fed­eral gov­ern­ment has put to­gether a $12bn pack­age to help save farm­ers from go­ing bank­rupt.

There are al­ready signs that global trade is slow­ing. Data from the OECD this week showed global goods trade barely grew in the third quar­ter. “Ex­clud­ing large oil ex­porters, such as Rus­sia and Saudi Ara­bia, G20 trade was flat, sug­gest­ing that the steady ex­pan­sion seen over the last two years may have stalled as re­cent pro­tec­tion­ist mea­sures be­gin to bite,” said the OECD. Also, the US mer­chan­dise trade deficit widened to a sec­ond straight monthly record in Oc­to­ber, as ex­ports from the coun­try fell. The goods-trade gap grew to $77.2bn from $76.3bn in Septem­ber, ac­cord­ing to Com­merce De­part­ment data.

Be­cause of this eco­nomic ef­fect – tar­iffs act like ad­di­tional taxes in a coun­try and raise prices and hit profit mar­gins – it is in all par­ties’ in­ter­ests to re­solve this dis­pute. Trump’s bom­bas­tic tac­tics ahead of the meet­ing are sim­i­lar to those seen dur­ing the rene­go­ti­a­tion of Nafta with Mex­ico and Canada – and a com­pro­mise was ul­ti­mately reached that was not that dif­fer­ent from the orig­i­nal agree­ment. But the best that the mar­ket can hope for this week­end is some sort of frame­work agree­ment on ba­sic prin­ci­ples, with the de­tails worked out in the next few weeks.

Both lead­ers will need to be able to sell the deal back home as a “win” but it shouldn’t be too dif­fi­cult to is­sue a form of words that is re­as­sur­ing for their do­mes­tic au­di­ence and world mar­kets. Of course, it will take some time for China to open up its mar­kets or show that it has im­proved its un­fair prac­tices on tech­nol­ogy, so the “war” is likely to be with us for some time, but both lead­ers have an in­ter­est in eas­ing these ten­sions. Although any agree­ment is likely to be short-term – and it is very un­likely that a full trade deal will re­sult from the tête-à-tête – the mar­ket will be pleased by any progress. This could come in the form of a sus­pen­sion of the tar­iff rises in Jan­uary or an agree­ment to im­pose the du­ties but re­duce them over time once cer­tain mile­stones are met by China.

But, with the pres­i­dent re­main­ing un­pre­dictable even for his own ad­vis­ers, any out­come is pos­si­ble.

‘If the dis­pute rum­bles on there could be se­ri­ous eco­nomic dam­age in terms of price rises and job losses’

GARRY WHITE

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