Jonathan Swan of Axios had a very important story Sunday about the state of US-China trade relations and the possibility of a meeting between Donald Trump and Xi Jinping at the G20 at the end of November. Swan, who may have the best sources in the Trump White House of any DC journalist, reports that:
President Trump has no intention of easing his tariffs on China, according to three sources with knowledge of his private conversations. Instead, these sources say he wants the Chinese leaders to feel more pain from his tariffs — which he believes need more time to fully kick in.
"He wants them to suffer more" from tariffs on $200 billion of Chinese goods, said a source with direct knowledge of Trump's thinking, and the president believes the longer his tariffs last, the more leverage he'll have...
Trump's trade war with China is at the "beginning of the beginning," according to a source familiar with Trump's conversations. And his team doesn't expect much from the tentatively planned meeting between Trump and Chinese President Xi Jinping on the sidelines of the G20 summit in Buenos Aires next month.
The Trump economic team has done no substantive planning so far for the bilateral meeting's agenda, largely because the purpose of the meeting is for Trump and Xi to reconnect, eyeball each other, and feel each other out amid their escalating trade war.
"It's a heads of state meeting, not a trade meeting," a source with direct knowledge told Axios...
All signs suggest the trade war between the U.S. and China is just getting started. I've asked sources close to Trump whether he's ever expressed any private concerns over whether his tariffs could backfire due to Chinese retaliation against American consumers or companies. Nobody I've spoken to has heard Trump express anything along these lines. He's all in.
I spoke with Swan as he was working on his article and gave him my thoughts:
"The trade war is just one dimension of the fundamental resetting of the U.S.-China relationship that Trump and the empowered and unleashed national security bureaucracy is undertaking."
"And even if there is a trade deal some time in the future the other issues, like Taiwan, South China Sea, interference/influence, basically everything Pence laid out — have little prospect of resolution."
"Where I think Trump is wrong is in his belief the Chinese will cave. Xi and the Party have spent years hardening their system to deal with an economic downturn and foreign threats, and they will take a lot of pain before they cave to the U.S., especially since the top of their system has finally come around to believing Trump and the U.S. have as their real goal the thwarting of 'China's rise.'"
"As best as I can tell from my own work and a lot of conversations on this subject, the Chinese expected this kind of broader competition and contention with the U.S., but not for at least another 5-10 years. So they would prefer to find ways to defer and play for time, but they will eat what they have to now if Trump forces them to."
I still think markets are too optimistic about the prospects of some kind of "framework" deal around a Trump-Xi G20 meeting, and in fact if the Chinese side is picking up what Swan is reporting then we should ask why Xi would even agree to a meeting at the G20 without significant changes in attitudes and offers between now and then?
One thing to watch for is an increasingly hard propaganda line towards the US, which may exacerbate an already negative feedback loop between the US and China. I hear it may be coming soon.
Want to read all of this October 22nd newsletter, as well as all archives and future issues?