Trump’s Hanoi failure sends message to Beijing on trade – I’ll walk

Trump’s Hanoi failure sends message to Beijing on trade – I’ll walk


“Xi was counting on Trump signing a trade agreement Beijing had no intention of honouring,” he wrote in a widely circulated Tweet after the summit collapsed on Thursday.

Mr Trump now also has the benefit of newly-minted official figures that highlightthe underlying strength of the US economy.

Even though annualised gross domestic product growth slowed in the fourth quarter to 2.6 per cent from 3.4 per cent in the third quarter, it beat the 2.2 per cent pace Wall Street economists forecast and brought 2018’s annual growth to 2.9 per cent, which is very close to the president’s 3 per cent forecast.

Those numbers, which Mr Trump’s top White House economic advisor Larry Kudlow was quick to seize on, contrasted with weak Chinese data overnight, including the worst export numbers in a decade andthe softest manufacturing activity in three. Those differences have emboldened US negotiators.

Anna MoneymakerBloomberg

Mr Kudlow blamed the differences between the US and Chinese economies on Beijing’s decision to move away from free-market reforms this decade.  Bloomberg

Mr Kudlow blamed the differences between the US and Chinese economies on Beijing’s decision to move away from free-market reforms this decade.

“They’ve become more centralised, more dictatorial, more control, more central planning, if you will, more socialist,” he said. “And the free enterprise reforms have been knocked out. So that’s hurt their economy.”

At the same time, Mr Trump’s tariffs “really hurt China” and came at a bad time in its economic cycle.

However, Mr Kudlow also reinforced remarks by top US trade negotiatorRobert Lighthizer before Congresson Wednesday that an agreement with China and summit in Florida between Mr Trump and Mr Xi look increasingly likely.

Congress

“Agreements between nations, like flowers and children, last while they last:” Robert Lighthizer, US trade representative. Anna MoneymakerBloomberg

He described progress during several days of talks in Washington last week as “fantastic”, covering a range of structural issues as well as the trade deficit.

“You know, when we had the Chinese over last week, the first day of the deputies’ meetings went very poorly, and the second day was cancelled because of that,” Mr Kudlow said in an interview on CNBC on Thursday [Friday AEDT].

“And then the principles met at the plenary session – I was there – led by Lighthizer [who] read them the riot act.”

“And Vice Premier Liu He…leader of the Chinese side responded. And all of a sudden everything picked up”

While the White House is still awaiting the response from Mr Xi and the Politburo, Mr Kudlow said; “I think we’re heading for a historical deal”.

Analysts in Washington are already examininghow the denuclearisation talks with North Korea went off the rails, and what the lessons for China might be. Some argue that Mr Kim overplayed his hand by asking for full sanctions relief up front.

They suggest China should avoid making the same error on trade.

“The implicit message from Hanoi is that Trump could walk out on the Chinese as well, and that might prompt concessions,” said Greg Valliere, a policy analyst for AGF Investments. “Beijing needs a deal just as much as Trump does, perhaps more considering the decelerating economy in China.”

That in turn, may be changing the dynamics of the negotiations. “Yes, Trump needs a victory, but he won’tembrace a deal at any cost.”

“The ongoing talks may not be resolved as quickly as the markets expect.”

US stocks were little changed on Thursday after a lacklustre session in Europe.

Signs that reaching a final deal remains full of hurdles were reinforced by Mr Lighthizer’s remarks to Congress.

“Let me be clear: much still needs to be done both before an agreement is reached and, more importantly, after it is reached, if one is reached,” Mr Lighthizer told the House Ways and Means Committee.

While a deal with China needs to include enforceable rules, Mr Lighthizer left no doubt it would only be a first step.

“I’m not foolish enough to think that there’s going to be one negotiation that’s going to change all the practices of China or our relationship with them,” Mr Lighthizer said.

“Agreements between nations, like flowers and children, last while they last.”

The trade advisor’s testimony has tempered some of the growing bipartisan concern in recent weeks that Mr Trump will settle for a soft deal to avoid further spooking financial markets.

But that pressure remains in place from many in business and on his own side of the political divide.

Former contender for the Republican presidential nomination Senator Marco Rubio said on Thursday that any deal with China is meaningless unless it has the rules right and has strong enforcement to back them up.

“But we may be headed for a deal where violations by China will trigger meetings,” he wrote in a Tweet. “And if meetings fail to resolve problem, more meetings. Are we#GettingPlayedByChinaAgain?”

Whatever the case, Mr Trump’s readiness to accept failure in Hanoi and the ongoing rude health of the US economy, have tipped the scales back in his favour on the China trade talks.

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