Nary a word of new detail came out of last week’s trade talks in Beijing, leaving markets no choice but to maintain confidence in a base case scenario that both sides are ready to shelve the guns of trade war.
There were continued signs that the negotiations, described on Friday as “constructive” by US Treasury Secretary Steven Mnuchin, are moving along smoothly, with China announcing modest concessions.
On Sunday, in advance of Chinese Vice-Premier Liu He’s visit to Washington this week, China extended a suspension of tariffs on US autos and auto parts. In another move tied to the trade talks, Beijing has designated all forms of the deadly opioid fentanyl as controlled substances. US President Donald Trump has suggested that cracking down on Chinese shipments to the US of the powerful drug would be part of a deal.
One report speculated that the reprinting of an old speech by Chinese President Xi Jinping, from just after he took office in 2013, signaled a sign that Beijing was prepared to concede on big policy demands.
A Chinese Communist Party Journal dug up the speech and added a previously unpublished segment on China’s competition with capitalist countries.
China’s leaders should “have a sound understanding of the self-correcting ability of capitalist societies, to not underestimate the reality of the long-term advantage of Western developed countries on economic, scientific and military fronts, and to conscientiously prepare for all aspects of long-term cooperation and struggle between the two social systems,” the newly inserted paragraph read.
An article from The South China Morning Post interpreted this as a clue as to Xi’s thinking on the trade war, suggesting that it portended larger concessions.
Others were skeptical that the publication has anything to do with trade and the essay should be taken in the context of broader political dynamics in Beijing.
In terms of what concrete information is known about the trade negotiations, the Trump administration’s chief negotiator, Trade Representative Robert Lighthizer, has provided the most insight.
He said weeks ago that the text of the deal will likely feature detailed chapters on all of the key disputes, including forced technology transfers, intellectual property protection, as well as increased Chinese purchases of US goods. Before last week’s talks, Lighthizer gave a timeline of “weeks,” suggesting that success or failure might come soon after this week’s round of talks in Beijing.
That’s good news for the global economy, which Moody’s Analytics Chief Economist Mark Zandi says will plunge into a recession if the trade war is not resolved “in the next couple to three months.”
“Business sentiment across the globe is extraordinarily fragile,” Zandi said in an interview on Tuesday.
“Businesses are really on edge and I think it’s because of this trade war. And if it’s not settled in the next couple (to) three months, I think a global recession is highly likely,” said Zandi.
“The difference between an expanding economy and a recessionary one is simply faith — faith that the economy is going to be okay. And if you lose faith, no central banks are going to get that back. That’s a recession,” said Zandi.