When US President Donald Trump sits down for dinner on Saturday with Chinese leader Xi Jinping, their table talk will undoubtedly have a global impact. What they agree on – or don’t – will determine whether stock markets rise or fall, whether the world economy gets some relief from destabilising trade tensions, and cast judgment on the wisdom of the American leader’s hard-nosed trade tactics.
Trump and Xi will be seeking a way out of a trade war between the world’s two biggest economies, while also saving face for their domestic audiences at home. Trump on Friday expressed optimism about a deal. ”
There’s some good signs,” he said.
“We’ll see what happens.”
The Trump-Xi meeting is set to be the marquee event of Trump’s whirlwind two-day trip to Argentina for the Group of 20 Summit after the president cancelled a sit-down with Russian President Vladimir Putin over mounting tensions between Russia and Ukraine.
Trade analysts and administration officials acknowledge it won’t be easy. The United States and China are locked in a dispute over their trade imbalance and Beijing’s push to challenge American technological dominance. Washington accuses China of deploying predatory tactics in its tech drive, including stealing trade secrets and forcing American firms to hand over technology in exchange for access to the Chinese market.
Trump has imposed import taxes on $250bn in Chinese products. If he can’t get a deal with Xi, he’s poised to more than double most of those tariffs January 1. And he’s threatened to expand tariffs to virtually everything China ships to the United States.
China, which has already slapped tariffs on $110bn in US goods, is likely to retaliate, ramping up a conflict that is already rattling financial markets and causing forecasters to downgrade the outlook for global economic growth.
US officials insist that the American economy is more resilient to the tumult than China’s, but they remain anxious of the economic effects of a prolonged showdown – as Trump has made economic growth the benchmark by which he wants his administration judges.
It’s unlikely the two countries will reach a full-blown resolution in Buenos Aires; the issues that divide them are just too difficult. What’s more likely, analysts say, is that they reach a truce, buying time for more substantive talks. Whether such a cease-fire would be enough to get Trump to delay higher or expanded tariffs is unclear.
Growing concerns that the trade war will increasingly hurt corporate earnings and the US economy are a key reason why US stock prices have been sinking this fall.
Joining other forecasters, economists at the Organisation for Economic Co-operation and Development last week downgraded their outlook for global economic growth next year to 3.5% from a previous 3.7%. In doing so, they cited the trade conflict as well as political uncertainty.
Trump met on Friday with Japanese Prime Minister Shinzo Abe and Indian Prime Minister Narendra Modi in a rare trilateral meeting. The symbolism ahead of the Xi meeting was clear: The Trump administration has looked to find common cause with both nations in countering China’s regional hegemony.
Earlier that day, Trump signed a revamped three-way trade deal with Canada and Mexico, fulfilling a longstanding pledge, though the agreement could face headwinds in Congress. He also held a series of formal and informal meetings and will continue those sit-downs Saturday, including with German Chancellor Angela Merkel.
Last spring, it looked like Beijing and Washington might have found a peaceful resolution.
In May, Treasury Secretary Steven Mnuchin declared the trade war “on hold” after Beijing agreed to increase its purchases of US soybeans and liquefied natural gas – a move that could have put a dent in China’s massive trade surplus with the United States.
But the cease-fire didn’t last. Facing criticism that he’d gone soft on China, Trump backed away from Mnuchin’s deal and decided to proceed with tariffs.
Now a lasting peace is likely to require the Chinese to scale back their ambitions to become a technological power. Or at least curb the strong-arm tactics.
Kudlow said the administration has been “extremely disappointed” by China’s engagement in trade talks but the meeting between Trump and Xi on the sidelines of the Group of 20 summit could be a game-changer.
“Perhaps we can break through in Buenos Aires or not,” he said.
Kudlow added that if the US doesn’t get “satisfactory” responses to its trade positions more tariffs will be imposed. He said Trump is “not going away”.
“I hope they understand that,” he said.
Republican Sen. Pat Toomey of Pennsylvania is skeptical: “This has been their business model for a while,” Toomey told reporters this week. “They’re not going to abandon it lightly.”