–Hours of Suspense Ahead
By Denny Gulino
WASHINGTON (MaceNews) – Lower level Chinese officials are in Washington Wednesday preparing for Thursday’s arrival of long-time sidekick to Xi Jinping, Vice Premier Liu He – whose job No. 1 has to be to forestall higher and wider U.S. tariffs.
Liu, the Harvard graduate who was schoolmate in middle school to Xi, reportedly tells Xi what economic policy is, not the other way around, and while ascending to vice premier only a year ago, he has been whispering in Xi’s ear for decades.
Was Liu the source for last week’s provocative quotes in Taoran Notes, the WeChat outlet for the leadership which cues the rest of the Chinese state media on what’s literally the Party line? Xi supposedly said that he would take full responsibility as China recalibrated its trade offers amidst insider rumors the Politburo is so happy with how this year’s stimulus is working it is paying less attention to economics.
Hope prevails for the time being, hanging on a slender thread, that word “deal” in Trump’s latest China tweet. Stocks that are up, if only a tenth of a percent, and a U.S. 10-year that has regressed 7/32s seems to some like markets in denial. Of course history’s worst trade war is such an unreasonable fear, so out of line with the trends, the realpolitik considerations, the rational conclusions of any responsible leadership that – it’s entirely possible given everything that can and sometimes does happen.
Now it’s up to Liu to argue to Lighthizer all the reasons the last weekend’s tweet threat of higher tariffs and much, much more of them should be postponed. Lighthizer at 71 and a half was thinking about an easier schedule at Skadden Arps when his long-held China views brought him to the attention of President Trump and the opportunity of a lifetime to alter the path of history. Now he has to judge whether he’s taking China’s bait or offering it.
After all, Liu will likely say, dialing back the commitments to change China’s laws is only a precaution against overpromising, that some laws like that limiting forced technology transfer are already being put in place and, most persuasive, why tick off the hardliners, giving them plenty reason to rally their support?
We’re so close, he’ll say, and with a little more time, the Trump-Xi summit can open the door to decades of progress. Or else something important can be inadvertently pushed over the edge, with possible linkage to North Korea and the South China Sea.
Lighthizer, of course, won’t be persuaded but Treasury Secretary Steve Mnuchin may see the merits of arguments that can save Trump from getting boxed in the cul-de-sac that lies ahead, tariffs and their retaliatory mirror images that stretch on and on as many farmers lose everything and industrial supply lines get wrenched into more expensive new patterns.
Peter Navarro and Larry Kudlow can fight it out in the White House hallways as Trump calculates the costs and benefits – to him – of extending the talks timeline a little more.
Liu is not hanging around Washington long, and the deadline for the first phase of new tariffs is a minute past midnight early Friday morning. That sets the stage for a cliffhanging couple dozen hours or so of suspense for the markets. If no word by midday Friday, some difficult decisions will be made about weekend positioning.
A dramatic extension of Liu’s visit, as his huge delegation and their planes wait, or an abrupt end to the talks and Liu’s early departure are two extremes with any variety of interim work-arounds possible in between.
Meanwhile, pundit perplexity abounds. Listen to the debate about tariffs’ effect on the inflation rate, as if that were a prime concern in this environment. The inflation rate consequence, a bounce up and a bounce back, and maybe should all of China trade become a target in the weeks ahead, a big bounce up and less of a bounceback, will in fact be extremely transitory, to use the word of the day, as the price level ratchets up and stabilizes.
Prices, having been elevated, will become for some just an added irritant and for others a perhaps existential problem as the market basket of consumer goods gets skewed to avoid the now pricier expenditures. The business price level would rapidly move downstream into kitchens and living rooms and warehouses everywhere.