After Trump’s tweets, 3 outcomes to US-China talks

Donald Trump’s tweets on Sunday afternoon shattered the air of inevitability that surrounded the prospects of a deal to end the US trade war with China. By giving Beijing an ultimatum — either make new concessions or face higher tariffs by Friday — Mr Trump raised the stakes and signalled that he was prepared to see the talks collapse. 

But while the risk of failure has risen, there is still a wide range of outcomes to the negotiations this week, and much will depend on how Beijing reacts to the threats from the US president. Here are the three main scenarios:

1. A new escalation

Mr Trump’s tweets end up delivering a mortal blow to the chances of a deal, as Xi Jinping, the Chinese president, would lose too much face by negotiating under these circumstances. Furthermore, the US president is not bluffing. On Friday, tariffs on $200bn of Chinese imports rise from 10 per cent to 25 per cent, and the following week, the White House sets in motion the process for increasing tariffs on the remaining $325bn of Chinese imports. Inches away from a settlement and resolution, the trade war between the US and China flares up in a big way, rattling markets and unsettling the global economy once more. A new attempt at a deal will not occur until at least the autumn of 2019, or even in 2020.

2. A deal on deadline

Mr Trump’s tweets are simply part of the choreography ahead of the announcement of a deal. He needed to show China hawks that he was being tough, to avoid a political backlash at home. The Chinese went along with it, because they knew they weren’t making big concessions anyway and could return home with an agreement.

A deal is announced at the end of the week, and a new era of trade peace begins between Washington and Beijing, with Mr Trump and Mr Xi formally signing the armistice in mid-June. Markets and business are relieved, even though it is unclear how solid the deal is.

3. A fudge and a punt

Mr Trump’s tweets cause enough friction to derail the chances of a deal by the end of this week, but not enough to trigger a full-blown return to confrontation. Chinese officials come to Washington with a limited delegation and appear to make some overtures to the US side. This is enough to stave off new tariffs, but not enough to close an agreement, which Beijing would find hard to stomach given Mr Trump’s threats. Both sides agree to keep negotiating, but the best-case scenario will be a deal at the G20 summit in Japan at the end of June, if not in July.

Given how fluid the situation is I would give each of these outcomes an equal probability of happening. But I would love to hear your opinion on which is the most likely. So please send any feedback over the next hours to and we will consider publishing the most accurate responses in the next Monday newsletter. 

Steel tariffs stand-off reaches boiling point

Donald Trump’s stubbornness on steel and aluminium tariffs appears to be reaching a tipping point.

Last week, Chuck Grassley, the Iowa Republican senator and chairman of the finance committee, which has jurisdiction over trade, issued a blunt warning to Mr Trump — that the USMCA trade deal with Canada and Mexico was “dead” on Capitol Hill unless the levies imposed on America’s neighbours last year on grounds of national security were lifted.

Mr Grassley is taking this position mainly because his constituents have borne the brunt of the tariffs — which have raised the cost of key manufacturing inputs — and retaliation on agricultural products.

Since Canada and Mexico have also warned that their ratification of the deal is in peril unless those metal tariffs are lifted, one would think that the US administration might back down and give the agreement a fighting chance.

But the administration is still insisting on a solution — possibly quotas — to replace the tariffs, which is still problematic. And Mr Trump, late last week, wrote a tweet that clearly showed he remained enamoured with the metals levies, and is unlikely to let them go.

“232 Tariffs make Pennsylvania and USA more prosperous/secure by bringing Steel and Aluminum industries BACK. Tariffs are working. Pittsburgh is again The Steel City. USA Economy is BOOMING!,” Mr Trump said.

In reply

Seen from abroad, Mr Trump’s attitude to the USMCA and the Chinese talks seem to have one thing in common. He treats his domestic constituencies, and often Congress, with a casualness bordering on contempt, writes Free Trade co-author Alan Beattie.

His administration is prepared to sell out farmers and steel-using manufacturers to pursue his model of USMCA. One of his reasons for pursuing the China deal is supposedly that he is concerned about the impact of a trade war on the US stock market. But his tweets on Sunday pushed down global markets, including the S&P 500, sharply on Monday.

Either this is part of James’s second scenario, where the US president ramps up the pressure to improve the deal just before agreement and hopes markets will recover, or he is less concerned about equities and even the US economy than he claims.

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Chart choice

This state-by-state graphic by Econofact was published last year, on the eve of those steel tariffs. It shows that the number of jobs in businesses that use steel as an input which are hurt by the levies is far greater than those that produce steel, which benefit from the levies.

Big number — 40 per cent

Bloomberg News has highlighted on interesting facet of the US-China negotiations. US film companies currently earn 25 per cent of ticket sales in China, but US negotiators are pushing Beijing to raise that to 40 per cent. (Bloomberg)

Further reading

● The EU has released its proposal to the World Trade Organization on new rules regulating global ecommerce (European Commission)

● A helpful guide on what to look out for on Chinese subsidies, from Chad Bown of the Peterson Institute for International Economics (PIIE)

● A look at how the purchases of US goods expected in the China deal will be mainly done through state-owned enterprises (CFR)

● Our dispatch from Muscatine, Iowa, on the politics of the trade war (FT) 

● The case for free trade (National Review)

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