It's Gonna Get Messy

Trump's latest tirade about China is sending shockwaves thru the media on Friday.  After a tumultuous week in federal court, the emergency tariffs were reinstated, allowing Trump to resume his boiling up of trade negotiations with China.

But will they boil over?

His aims are clear-get a long term deal done.  It's the worst-kept secret that both economic superpowers will ultimately do more harm than good continuing course, where back and forth subterfuge against emerging industries are the way to stall tipping the economic scales.

Both Trump and Xi know that tariffs in the long run are a bad idea.  However, the US tariffs (and to an extent the China reciprocal tariffs) have been in place for nearly a decade and are basically a fact of life regarding global trade. The question is, what is the deal Trump is seeking?  Is it the restoration of his 2017 trade pact, or is it something new?  Something more aggressive?  The US Trade Representative has been tight-lipped. But we now know the tariffs are just one prong of the approach-and Trump and the U.S. Trade rep indicated a precious minerals deal, yet have otherwise been elusive.

From what we do know, the Admin's reported moves on the Chinese aircraft industry bring the tension up a notch, for effect.  The May 13 deal included a lift on bans of Boeing deliveries to China.  This included upwards of deliveries of 50 airplanes.  Export controls were introduced by the U.S. before, but this aggression is a new tactic, yet not unpredictable nor unprecedented.

Trump's previous move to get Starlink up and online before China's satellite-based internet service is a move to retain foothold of market share.  Trump previously ordered curtailments of A.I. products and chip semiconductors as part of the export controls aimed at stalling the China space program, where China proclaimed the US "Golden Dome" to be a step in the wrong direction two weeks ago, while militarizing commercial space and kicking off an arms race.  Obviously, providing vital materials and designs help accelerate Chinese aircraft and space industries, a vital competitive space amongst American and European builders and operators.  And China has self-admitted that their jet engine development is at least a decade behind the West.

On the surface, it seems to be an autocratic and a step in the wrong direction by dragging allies and trading partners thru the mud-in many sectors, these new export controls on aviation caught many by surprise. 

Where Trump asserts that the rest of the world has basically been using the U.S. as a subsidy while using non-tariff barriers to trade to stifle American access to their markets.  Trump was also against the U.S.'s involvement in the Trans- Pacific Partnership and other multilateral trade agreements for the reason that it didn't really serve American export interests and provide offsetting power for America to adjudicate against smaller countries in the agreements. And to the extent I agree, but American consumers already impacted by rising prices and a recoiling economy won't care much about the medium or long-term economic dominance Trump seeks over China if they can't fill their gas tanks or fill their refrigerators.

Trump is a tit-for-tat negotiator, and this proclamation is yet another arrow in his negotiating quiver...he likes to decouple a cohesive negotiation narrative in the hopes of walling off each talking point to achieve the outcome he desires.  The problem is, China knows this and has been relatively successful at splitting the uprights on this tactic, as Trump is largely all by himself on the world stage.  To that end, what Trump is calling an agreement in the press is really a handshake deal at best, which seems to be the norm for his trade deals. He largely understands them to be more frameworks than inked deals that the rest of the trading world can pivot from.

The only thing we can do is wait and see what China does next.  Do they react now, or do they impose an offer that benefits America now but ratchets them back in years on down the road?  Or have they had enough?