Beijing Shifts Negotiation Goalposts – Demand Current Tariff Removal or No Negotiation…

Before President Trump and Chairman Xi Jinping met in Osaka at the G20, Beijing requested the removal of current tariffs as a contingency for a Trump-Xi meeting.  The tariffs are causing two issues: (1) China is bleeding cash via subsidies to offset the tariffs and retain export position; (2) ancillary manufacturing companies are exiting China to avoid tariffs into the U.S. market.

Understanding how the static dynamic -he intentionally created- was favorable to the U.S., President Trump reasserted that current tariffs were not going to be removed.

After the Osaka meeting, President Trump and Chairman Xi agreed to re-open talks between the two teams with no new tariffs; however, as stated before the G20 summit the preexisting tariffs would remain.

Beijing is increasingly recognizing how the current status is disfavorable to their economy; and asserting that no further trade talks can take place until the U.S. promises to remove all tariffs as part of a completed agreement.

(SCMP) China has insisted that all tariffs on Chinese imports added by the United States during the trade war must be scrapped immediately as part of any deal to end the year-long conflict, which would require the Trump administration to give up its position that some levies remain in place even after an agreement is reached.

US President Donald Trump agreed to pause placing new tariffs of up to 25 per cent on an additional US$300 billion of Chinese imports not yet subject to taxes after his meeting with Xi Jinping at the G20 summit last weekend in Japan.

But for any deal to be reached, US tariffs of 25 per cent on US$250 billion of Chinese imports that remain in place must be removed, said Ministry of Commerce spokesman Gao Feng on Thursday, underscoring that there are still many issues to be resolved to end the conflict as it approaches its one-year anniversary on Saturday. (read more)

The position of Beijing is tenuous. President Trump was not inclined to even begin further talks; the status-quo actually favors the U.S. position. Few companies with operations that require access to the U.S. market are willing to commit to any further China investment while the trade conflict exists.  A process of “deglobalization” or regional shift is underway.

The U.S. economy remains strong.  As a result of economic nationalism, right now the U.S. is the wealthiest consumer base in the globe.  Many companies are re-positioning to be closest to their most valuable consumers, and there is massive proactive investment in Mexico as passage of the USMCA trade agreement is likely.

Justin from Canada held a political strategy session with Nancy Pelosi and looks like he agreed to postpone any Canadian Parliamentary vote until after Pelosi passes the USMCA in the U.S. congress.  It’s likely Pelosi wants to wait until after the 2020 election to avoid giving President Trump a win.  However, this means Justin from Canada has agreed to allow his own economy to further collapse just to assist the OrangeManBad objective.

Yesterday as the U.S. celebrated another 224,000 new jobs created, Canada posted their June results:

Spencer Fernando 🇨🇦@SpencerFernando

Canadian Economy Loses Over 2,000 Jobs, Unemployment Rate Rises – Spencer Fernando

Economists had expected a gain of 10,000 jobs. The latest jobs report shows the Canadian economy losing 2,200 jobs in June. The unemployment rate rose,

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Yes, Justin is rolling the dice and hoping he can win reelection without having a positive USMCA outcome to point toward.   However, the China trade issue actually dilutes any negative value Pelosi and Justin can generate by holding up the USMCA.

As a direct outcome of how Trump has positioned the U.S. trade strategy there are two simultaneous issues defeating the Trudeau-Pelosi scheme.

Specifically because Trump created: (1) a process of deglobalization away from China; and (2) a regional investment process in Mexico; President Trump now holds key leverage in both directions.   Part of that leverage is seen in the political shift within Mexico to assist on the Central American migration issue.   The potential for national security tariffs on Mexico is now less than 60 days away (POTUS gave Lopez-Obrador a 90-day corrective window).

There is no current reason for President Trump to change the stalemate with China, and Pelosi’s scheme to hold-up the USMCA only makes things worse for Beijing.  Without the USMCA ratified President Trump’s best play, to ensure strategic trade objectives are accomplished, is to delay any China talks or agreement.  Doing nothing is a strategic decision.

The longer this goes on the weaker Beijing becomes.  Simultaneously the longer this goes on the more multinational corporations will look toward the U.S. for direct investment, -OR- look at Mexico as a safe hub, close to the U.S. market, where they can avoid controversy.

If Beijing follows through with a threat to disengage until current tariffs are removed, they are only hurting their own economy.  It is only because President Trump has guided the trade reset to this specific place in time that this current dynamic is possible.

As a consequence, the tariffs will continue until panda behavior improves.

Don’t look for Team U.S.A to make any compromise.

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