Chinese leader Xi Jinping has been in Pyongyang over the past couple of days, ahead of his meeting with Donald Trump at the G20 meeting in Osaka. Meanwhile, in Washington, various politicians are warning Trump not to use Huawei as a bargaining chip in the US-China trade negotiations. Both are signs that we are heading towards a big moment in the US-China relationship, with all sorts of extraneous factors being thrown into the mix.
All that is lacking is clarity. What is the US bottom line on the items that were removed from the working document by the Chinese side in early May? We don’t know. What is China’s bottom line on calls for changes to how its system works in relation to the outside world? We don’t know. Would a China-brokered breakthrough of some sort on the Korean Peninsula be accepted by the US in place of measures leveling the trade playing field? We don’t know. Is Mr Kim anyway willing to give Xi anything more concrete he can take to Osaka? We don’t know. And on Huawei – is a concession on that front a possibility given the stated hard line stance of Sec. of State Pompeo? We don’t know.
The markets would certainly like a deal. But in spite of the all the chips on the table, our money would still be on the Osaka meeting ending with nothing more than a postponement of higher US tariffs on Chinese imports and a resumption of the trade talks. Of course with the Donald in the room, anything is possible. And if we are vaguely right, the result of the meeting would be continued pressure on the Chinese economy, but no new sharp shocks. That’s the best outcome Those in Command can probably hope for right now.
Have a good weekend.