Trying to figure out the US-China trade talks seems to be impossible for the participants, let alone us outsiders. Such is the implication of the biggest news of the past week, which is the revelation in reports from Washington that Those in Command in Beijing sent a revised version of the draft agreement back to the Americans, removing many of the key requirements that had been discussed and apparently agreed in principle sufficiently for them to be in the working draft. Changes to the draft are said to have included measures aimed at dealing with IPR theft, forced technology transfers, access to China’s financial services market; and currency manipulation. The reason for the sudden change in direction? Apart from the obvious “Who knows?”, speculation included the possibility it reflected a belief on the China side that the US economy was more vulnerable and the Chinese economy less wobbly than when the key elements had been included a couple of months ago, or that Those in Command reconsidered the implications of what presumably are fairly wide-ranging concessions on their ability to hold steady the delicate balance that is China’s system. The US reaction to the rollback was to ramp up tariffs on Chinese goods heading to the US, and the China government responded to that by saying it would take necessary counter-measures. After many weeks where it seemed there was an almost-done deal, it’s now just impossible to say where this is going. It’s back to a game of chicken, and the core question posed many months ago, rears its head yet again: who needs who more?
To the extent that the markets reflect the state of play on the trade war, it is worth noting that Shanghai stocks plummeted on the news, until Friday when the key index zoomed up several percentage points at the opening, then fell sharply midday and zoomed up again before the close. What that probably reflects is a determination on the part of Those in Command to support the market with as much money as it takes, and a belief in the markets that overall this is a time to sell.
In other news, consumer inflation hit a six-month high in April – inflation is a key concern in terms of steady sailing for the China ship. The US database company Oracle announced large cuts to its workforce in China and Canadian businesses are suffering from Huawei chills – more than half of Canadian companies operating in China have changed, postponed or cancelled business plans in the wake of the arrest of Huawei CFO Meng Wanzhou in Vancouver six months ago, according to the Canadian chamber of commerce in Beijing. And then there are reports that American “armyworms”, an agricultural pest, are become a major problem in southern China. Some tit-for-tat at work there? Who knows.
Have a good weekend.