Well, there are more rumors than usual circling Washington this week -- talk of a "new kind of recession, driven by trade fights" is one. Also, there is talk that China is still open to a partial deal with the U.S. The idea is that Beijing is increasingly focused on "limiting the damage" to the world's second-largest economy.
However, Bloomberg noted that as negotiators head to Washington there is little optimism about a broad agreement that would end the current war "for good," the report said.
As a result, the group is focusing on the likelihood that China would accept a "significant" proposal as long as no more tariffs are imposed by the U.S., including two rounds of higher duties set to take effect this month and in December. In return, Beijing might offer "non-core concessions" like purchases of agricultural products without giving in on major sticking points. No further details were offered, the administration said.
Even so, equities markets responded positively to the report and the offshore yuan extended recent gains. Separately, as noted above, the Financial Times reported that China is offering to increase purchase of American soybeans to 30 million tons annually from 20 million presently.
The latest round of negotiations comes just days after the White House announced the blacklisting of Chinese technology firms over alleged roles in oppression in the far west region of Xinjiang, as well as visa bans on officials linked to the mass detention of Muslims. In addition, there is a dust-up between China and the National Basketball Association, triggered by a tweet backing Hong Kong's protesters. Many observers see this as an indication of a "widening gap between the countries," Bloomberg thinks.
"I think there might be big breakthrough in the coming trade talks as both sides have expressed good gestures and positive signals," Huo Jianguo, a former Chinese commerce ministry official who is now vice chairman of the China Society for World Trade Organization Studies said. "The recent blacklist and sanctions from the U.S. are just another usual tactic to showcase that it has multiple tools in the trade negotiations in line with president Trump's maximum pressure policy. It is hardly surprising to us and we shouldn't take it too seriously," he said.
President Xi Jinping's government is under pressure to stem the broadening conflict as the trade war adds to the forces slowing China's economy. At the same time, China has resisted changes to its own industrial and economic policies that could potentially weaken the Communist Party's grip on that economy.
Talks have failed to make serious headway since negotiations collapsed in early May. Since then, China has ramped up its nationalist rhetoric as the U.S. has targeted national champions like Huawei Technologies Co.
"The rising nationalism sentiment at home is creating hurdles for President Xi to make concessions in the upcoming trade talks especially in light of the NBA firestorm and Xinjiang sanctions," said Suisheng Zhao, executive director of the Center for China-U.S. Cooperation at the University of Denver's Graduate School of International Studies. "Even if China is willing to make some compromise, that space is limited."
In addition, on Tuesday Jerome Powell, chairman of the U.S. Federal Reserve, said "my colleagues and I will soon announce measures to add to the supply of reserves over time." Powell was speaking at the National Association of Business Economics meeting in Denver, Colorado. However, he emphasized that "This is not Quantitative Easing," the Washington Post reported.
The Fed chair did not specify the size of the new asset purchase program, but said it would not be a resurrection of what was done after the recession 10 years ago. "I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis," Powell said. The Tuesday announcement was a widely anticipated move. Its final details are expected at the Fed's next meeting and press conference on October 30.
Powell left the door open to additional rate cuts to protect the U.S. economy from weak growth abroad and the administration's trade war, but he did not promise lower rates. Wall Street is pricing in nearly an 85 percent chance of a rate cut in October, the Post reported.
It all makes for many, many economic and trade uncertainties. The Fed seems fully poised to act — and any sign of life in the upcoming talks will be welcomed widely, it seems. The key unknown is whether both negotiators are actually willing to make the necessary concessions to move toward a deal — a process producers should watch closely as it unfolds, Washington Insider believes.
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