China trade relations get nastier, but U.S. officials hold out hope for NAFTA deal

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Discussions between the U.S. and China have stalled out, while the Trump administration has been appearing to make progress in talks with the European Union and Mexico. European Commission President Jean-Claude Juncker met at the White House with Trump last week, and the two announced new talks and a truce on any new tariffs, including European autos.

“For every tariff, it’s a tax. Every tax slows growth and raises inflation. At this point, people got encouraged with the Trump-Juncker meeting,” said Peter Boockvar, chief investment officer at Bleakely Financial. “They thought that was a catalyst for a sit down with China, and we’re close to making a deal with Mexico and maybe Canada. For them to have another round of tariffs, the momentum we thought we had was not momentum. It was another two steps back.”

With Europe in flux, Clifton said, “The fight is with China, and they’re going to ratchet China up while continuing to work out deals with allies.”

The announcement also follows news reports Monday of possible talks restarting between China and the administration. That headline boosted the stock market. “It’s beyond me to have the announcement come out that there’s going to be high level talks. ‘Let’s negotiate, then when you turn around, I’m going to crack a bottle over your head,'” said Boockvar. “Maybe this is part of the negotiating process. I have to believe there’s another way.”

Clifton said there’s no sign that any actual talks are underway.

The rhetoric from China has also ramped up. On Wednesday, China’s foreign ministry said: “U.S. pressure and blackmail won’t have an effect. If the United States takes further escalatory steps, China will inevitably take countermeasures and we will resolutely protect our legitimate rights.”

By Thursday, China’s Ministry of Commerce said the U.S. “carrot and stick” method would not work and it would retaliate in order to defend its dignity.

The Trump administration said no specific action on China’s part prompted the latest announcement.

Clifton said there may not be talks between the U.S. and China until after the U.S. mid-term election.

“There’s a growing belief that China doesn’t want to negotiate with the U.S. until after the mid term. The reason for that is they believe Trump will be weakened after the U.S. election. What could impact that is if the polling improves for Republicans and that gets China’s attention,” he said.

Clifton said on the U.S. side, if there were any signs of a slowing of the economy from trade impacts, that could push the Trump administration back to the table with China.

“I think the next step is the implementation of the $16 billion in tariffs, and then they’ll respond with that. The $200 billion is a list but it’s not ready to go and we won’t see that comment period until Sept. 5,” he said.



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