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De-escalation without Trust?

Two weeks ago, there was a moment of optimism in the ongoing trade war between the United States and China. These moments come every few weeks. This one came on October 11th. I was sitting in my office with CNBC on in the background, which I turn on when the stock market is having a particularly exciting day. The markets stopped their 500+ point decline when the news broke that President Trump and President Xi were going to meet in Argentina later this year during the G-20 meeting. Traders had a glimmer of hope that the escalating trade war might ease.

I don't think traders had a unified goal for the meeting. I'd say that the best case scenario is an end to the trade war with systemic changes in China. In this scenario, the presidents meet, Xi gives a roadmap for intellectual property theft reform and stops sponsoring forced technology transfer and Trump removes tariffs on $250 billion worth of good coming from China into the United States. At the least, they talk and the trade war isn't escalated further. The conversation would involve enough concessions by Xi that Trump would not increase the 10% tariffs to 25% on January 1st, but neither side would be willing to budge enough to remove the current tariffs.

In this moment, the world emitted a collective sigh of relief. But it was a fleeting sense of relief. Given how ineffective previous meetings between these two governments have been, I was always skeptical. Then last week, Trump announces that he will withdraw from the Universal Postal Union because China Post is getting an unfair subsidy from the United States Postal Service. While this is not directly related to the trade war or intellectually property rights protection, this is the type of high profile announcement that the Trump administration has made before previous meetings that has undermined both parties' willingness to cooperate.

Today, overall optimism for this meeting waned dramatically when the Wall Street Journal's lead story was, "U.S. Won’t Resume Trade Talks Without Firm Proposal From a Wary China

Stalled negotiations threaten to undermine meeting between Trump and Xi next month". The article reports that Beijing has requested under-secretary level meetings and Washington has declined. Beijing does not want to share the written proposal that Trump is requesting for fear it will be made public. Washington wants concrete steps that Beijing will take to avoid being strung along for months with no outcomes or being presented with a list of one-off concessions.

Both sides have legitimate fears. These scenarios have all played out in the past. My question is how ready are the two sides to negotiate. There is not a lot of trust. Without trust when can get the two largest economies in the world to the table to discuss a path forward?

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