Trump and China: We're Back On (for now, at least...)

After a contentious week, and an apparent phone call with Chinese president Xi Jinping, US president Donald Trump announced trade talks scheduled for Monday in London between the two economic superpowers.  

But will the trade talks hold, or will the bridges built in London fall with no resolution in sight?

With the news breaking in the West on Friday afternoon, the Chinese press will have limited time to run the story.  London will be the stage, conspicuously across the English Channel (and in plain sight) from the NATO and EU headquarters in Brussels, Belgium.

Trump sees the European Union as compromised, as they have been negotiating a free trade agreement with China, so the location will be right in plain sight of China's other largest trading partner. The meeting goals will be two-fold: one, an olive branch aimed at publicly cooling the temperature created by the barbs each country has thrown over the last few weeks, followed by a more substantive discussion on tranched repeal of reciprocal tariffs.

The US policy on slowing the influence of foreign manufacturing and economics of scale has largely been designed to head the expansion curve of the Chinese economy off at the pass, eventually rendering their labor cost advantage moot.  China is very well aware of this economic reality, becoming more reliant on innovation as the back half of their economic plan while their middle class grows and they flesh out their emerging economy-and the problems that come with it.

What each country's goals are remains to be revealed and will likely stay obscured.  At a minimum, Trump likely wants to restore at least part of his agriculture purchase requirements and retain precious minerals options.  China likely wants a drawdown of tariffs aimed largely on the consumer goods they intend to export starting next quarter to stock the shelves in the States for the holiday season.

The US's top negotiator, US Trade Representative Jamieson Grier, is a former US Air Force officer, a former private litigator under the steel and aluminum tariffs, and is hawkish on Chinese influence in world politics and economics.  Grier was Trump's first US Trade Rep Robert Lighthizer's chief of staff under the first Trump administration.  We can expect a similar approach to China, albeit rebranded.

Trump's negotiations need to go well, as although the US economic inflation and job markers remain positive, public perception of his presidency is fragile.  This may just be far enough away from the midterms, but it won't be completely out of sight, and Republicans that need key wins to retain both Houses will pick their battles.

Trump will clearly boast some victory from this discussion, no matter how insignificant.  He does expect money to flow in to the US, and he won't acquiesce to more foreign direct investment encroachments by the Chinese. And at a minimum, tariffs will need to be rolled back and goodwill restored, with a short wick of only about 60 days for both countries to keep the vibes going. We can expect a nominal rollback for an industry or two, with export controls kept largely in place until larger commitments are met-likely in the realm of foreign direct investment into China on an even keel with the EU's deal with the Communist Party of China.

A wild card, although risky, isn't out of the question, .  The US and China could be on a path to carve out the EU and dominate the world for decades to come, as the EU relies on economies of scale, subsidies, and foreign investment from both the US and China.  Crazier things have happened-think about it, with the right framework, the US and China could control world trade for decades, if not longer, with the right concessions and the right framework.  China knows that they have blind spots too, and the US's influence in the world can still put its might behind stalling China's plans, and likely will.  And much like China, Trump will not do a deal that requires a compromise on a true source of dominance.  We'll see if China plays to his ego, or his instincts.

As Trump said, it's "America First".  But first to what, the top or the bottom?