Stocks Rally On Report China’s Top Trade Negotiator To Meet Mnuchin In Washington

With news that President Trump’s investigation into possible national security tariffs on car imports threatening to rattle investors during Tuesday’s session, global investors rejoiced after the South China Morning Post, a quasi-official mouthpiece for the Communist Party, reported that Chinese Vice Premier Liu He would visit the US this month to work on resolving the ongoing US-China trade dispute with Treasury Secretary Steven Mnuchin. That meeting is expected to take place in the days before President Trump and Chinese President Xi Jinping hold a summit of their own on the sidelines of the G-20 meeting in Buenos Aires.

Following what was the most encouraging trade news since Xi and the White House confirmed last week that the two leaders would meet at the G-20 after a seemingly interminable parade of on-again, off-again headlines, global markets rejoiced, with S&P futures catching a bid and Asian benchmarks paring their losses as Treasury futures turned lower.

Reports about the visit followed reports in the Wall Street Journal late last week that the two men, who are among the most senior officials responsible for trade talks, had spoken over the phone about possibly restarting negotiations.

Mnuchin

In its report, the SCMP said two sources from the US and two from China had confirmed the news, though they specified that a schedule for the visit had yet to be determined. It’s expected that Liu’s visit will lay the groundwork for trade talks between the two leaders. He, who is Xi’s top official for economic issues, was supposed to visit the US back in September, but he cancelled his visit as the trade tensions between the US and China entered what has been their most acrimonious stage so far – something that many analysts believe helped triggered the dramatic “Shocktober” selloff where global markets erased $8 trillion in market cap.

The US has repeatedly insisted that China agree to a framework of possible concessions ahead of the talks, including at least some of the Trump administration’s central demands – such as lowering the China-US trade surplus (which recently climbed to a record high), ending officially sanctioned IP theft, an end to cyberespionage and reducing government subsidies to China’s tech and industrial base. But whether any progress will be made on these issues remains to be seen.

News of the possible trade detente followed a visit by former US Secretary of State Henry Kissinger, who negotiated the historic meeting between President Richard Nixon and Chinese leader Mao Zedong in 1972.

As China’s currency weakens and the economic fallouts from the trade war worsens, Chinese officials have been advocating for a negotiated end to the trade war by stressing that both sides will suffer if the spate intensifies.

At a business forum in Singapore on Tuesday, Chinese Premier Li Keqiang said China and the US should be cooperative partners.

He said China hoped to achieve a proposal acceptable to both sides based on the principle of mutual respect. “There is no winner in a trade war,” Li said.

The SCMP also hinted at China’s thinking by pointing out that officials were “concerned” that making an offer before the G-20 summit would cost them leverage.

Shi Yinhong, professor of international relations with Beijing’s Renmin University, said the best guess for an outcome of the trade talks could be no further tariffs from China and the US on each other’s products.“But the other half of the trade war, which is the US technology blockade, will not be suspended, no matter who is the US leader,” he said.

In a speech on Monday, Shi said the Chinese government should expand market access, increase imports from the US, and reduce hefty state subsidies and control of economic activities to strive for a “relatively long period or regional” truce in the trade war.

But he added that China was unlikely to fundamentally change its industrial policy.

Shi said China’s top priority now was to curtail the risks of the trade war on its economy and financial system to ensure stability.

If China is hoping to avoid an escalation, then time is running out, as the US is expected to increase its tariffs on $200 billion worth of goods to 25% from 10% at the start of the new year. Of course, given that the timing and date of this visit have yet to be set, a savvy investor would be wise to check this morning’s lineups for CNBC, Fox and BBG – because there’s still time for Larry Kudlow to pour cold water on the report, presumably sending markets back into a tailspin.

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