And just like that, confirming weeks of media speculation, Trump has folded with the Dow Jones/WSJ reporting that not only will Trump not impose the new tariffs set to come into effect on Dec 15, but will cut existing tariffs by up to 50%.
- U.S. Negotiators Offer to Cut Existing Tariff Rates by up to 50% on $360 Billion of Chinese Imports – Sources
- U.S. Negotiators Also Offer to Cancel New China Tariffs Set to Take Effect on Dec. 15 – sources
- President Trump will Hold Meeting Thursday to Discuss China Trade – Sources
Moments before the WSJ report, Trump wrote in a Tweet: “Getting VERY close to a BIG DEAL with China. They want it and so do we!”
China’s Global Times twitter troll was delighted:
Glad to see President Trump saying this: "They (China) want it, and so do we (the US)!" Only when both sides want a deal, can it be truly reached. https://t.co/qkKmhZxKxc
— Hu Xijin 胡锡进 (@HuXijin_GT) December 12, 2019
But why the flurry of recent rumors and Navarro media appearances? China-watcher Bill Bishop has a credible explanation:
Sounds like there is some kind of deal, and Navarro was trying to rally outside forces to pressure the president because he knew he was losing internally
— Bill Bishop (@niubi) December 12, 2019
So what does Trump get in return for folding like a cheap chair? Why pledges to buy more agri products, pledges which apparently are not even enforceable as they are merely “firm commitments”, in other words taking China for its word:
According to the WSJ, the tariff-reduction offer was made in the past five days or so, and in exchange, the U.S. side has demanded that Beijing make firm commitments to purchase large quantities of U.S. agricultural and other products, to better protect U.S. intellectual-property rights and to allow greater access to China’s financial-services sector. Just one problem: this is where China balked in the past when told to make an uinbreakable pledge, and this time was no different. Curiously, a mere pledge was enough for Trump this time. That said, as the WSJ adds, “should China not carry out its pledges as part of the potential deal, the tariff rates would return to their original levels, a clause known in trade negotiations as a “snapback” provision.”
Sure enough, according to the report, “Chinese negotiators have balked at Washington’s request that Beijing guarantee its pledge to buy more U.S. soybeans, poultry and other products, saying doing so would run counter to the rules of the World Trade Organization.”
In any event, some sort of “deal”, in which the US gets a promise from China to buy more pork – which it desperately needs anyway thanks to its pig hyperinflation – is now virtually certain:
“Trade teams from both sides are maintaining close communications,” Gao Feng, spokesman at China’s Commerce Ministry, said at a news briefing Thursday. He didn’t provide any additional information.
In continuation of the move launched by Trump’s earlier tweet, stocks have extended their record breaking surge, with the Dow and S&P both now up nearly 1%.
30Y yields are surging, making lives for GSIB facing high year end scores even worse…
…. and the Yuan is soaring by 9 big handles, with the USDCNH down to 6.97.
Just one last thing before everyone gets carried away: the WSJ cautions that Trump still “hasn’t made a decision on whether or not to delay the scheduled new tariffs, or whether to accept a rate cut on existing tariffs.”
And then there’s this:
"China talks are going very well" – Trump, 12/7/18
"We're getting into the final laps" – Mnuchin, 4/29/19
"We are coming down to the short strokes" – Kudlow, 11/15/19
"Getting VERY close to a BIG DEAL" – Trump, 12/12/19
— Carl Quintanilla (@carlquintanilla) December 12, 2019
Finally, there is China itself, with the Global Times’ Business Source division suggesting that China still hasn’t gotten the memo:
.@realdonaldtrump said that China and the US are getting "very close" to a deal, but this could just be another trick to boost stock markets. China wants to see real actions not just words to show sincerity such as rolling back tariffs: Mei Xinyu, an expert close to the MOFCOM. pic.twitter.com/vXvJFkAi6W
— The Business Source (@GlobalTimesBiz) December 12, 2019