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What have we Gained from the G-20 Dinner with Xi?


Now that the rhetoric following the dinner between the Presidents of China and the U.S. and their respective entourages has been parsed and debated, there is a question as to what was actually agreed to given the absence of a communique.  The take-home message is that the U.S. has made a concession by delaying for a three-month period, the announced escalation of the current 10 percent tariff on approximately $200 billion in exports from China to U.S.  China has in turn agreed to import “substantial” (but unspecified) quantities of agricultural and industrial products to reverse the negative balance of trade.

The major issues of misappropriation of intellectual property, coercive pressure on U.S. businesses entering the market in China and state support for steel and other industries were not addressed.  It was accepted that these structural and fundamental issues will be the subject of negotiation over the subsequent three months.  There was even a question as to the starting time.  Does the clock start ticking on December 1st 2018, January 1st 2019 or after clearing away the dinner plates?

Prior to the meeting, Larry Kudlow the Director of the National Economic Council expressed pessimism over the bilateral talks although he was receptive to some deal to “turn a new page, a breakthrough”.  Kudlow is joined in moderation by the Secretary of the Treasury, Steven Mnuchin, who has independently initiated discussions with counterparts in Beijing.

The task ahead will be to normalize trade relations between the two largest world economies. This will be fraught with overlays of history, recalcitrance by China and an aggressive approach by the U.S., conflicting with the Asian concepts of slow and deliberate progress and the need to maintain “face”. 


It is evident that both sides have motivation to defuse the trade conflict. China must maintain a high growth rate and generate jobs. To remain in power after 2020 the U.S. Administration must increase prosperity through the next two years despite predictions of a recession. Inherent caution on the part of our opponent in negotiations and a take-no-prisoners attitude by designated Chief Negotiator, Robert Lighthizer suggest that talks will be contentious. Threats to impose tariffs appear to be the best hand that the U.S. can play. 


In the event that tariffs are prolonged and if agricultural and industrial trade is not restored, the negative effects of the U.S. bargaining strategy will become apparent in the form of inflation and decreased spending necessary to maintain economic growth.  At the end of the day any competent economist will confirm that tariffs are effectively taxes, limiting spending power. Economists also warn against conflating a trade deficit with a “loss”, a misconception accepted by the Administration.