There will be a meeting. The presidents of China and the United States will talk. They’ll both probably say it was a nice chat.
But the upcoming confab between Presidents Donald Trump and Xi Jinping is very unlikely to break an impasse on trade between the two countries that is rattling the global economy. Trump and Xi will convene during a gathering of global leaders, called the G20, in Japan on June 28 and 29. This is the first thaw between the two countries since Trump raised tariffs on Chinese imports on May 10, and China retaliated with punitive measures of its own.
Stocks rose when Trump announced the meeting with Xi, as if two proud and stubborn autocrats will hash out their differences and fix everything. Some analysts recalled a similar meeting between the two men last November, which led to a delay in threatened tariffs and a temporary respite in trade hostilities.
But three things are different this time, which is why hopes for a breakthrough are unrealistic. First, negotiators for the two nations plucked the low-hanging fruit earlier this year, leaving only the thorniest problems to work out. Second, both sides have escalated, leaving less room to maneuver. And third, Trump is now fully embroiled in the 2020 presidential campaign, with politics driving his agenda—something Xi is fully aware of, and likely to exploit.
Trump has so far managed to hurt China with tariffs, without wrecking the U.S. economy. But his tariffs are a tax on U.S. consumers and businesses that has caused harm on the margins, with manufacturing activity on the decline and businesses growing reluctant to invest amid trade hostilities.
A breakthrough is ‘unlikely’
Trump’s next threatened step—imposing 25% tariffs on $300 billion worth of consumer goods imported from China—could trigger a more serious downturn and possibly a U.S. recession. Will he do it?
Probably not all at once. The recent on-and-off tariffs on Mexican imports, which began at 5%, could tip Trump’s hand on China. Ed Mills of Raymond James & Associates predicts that if there’s no breakthrough in the meeting with Xi, there’s a 75% chance Trump will resort to new tariffs on Chinese imports in July. But Mills thinks the tariffs will more likely start at 5% and rise gradually than start at 25% right off the bat.
The sticking points between the two countries aren’t likely to be resolved just because the two leaders meet. A trade breakthrough at the meeting is “very unlikely,” says economist Paul Sheard of Harvard’s Kennedy School. “The current trade dispute between the U.S. and China is not amenable to a quick or easy solution. To satisfy the Trump administration would require China to change fundamental aspects of its Party-dominated State-led capitalism model.”