Trade war, day 98: Trump and Xi to meet at end of November

Both American and Chinese stock markets plummeted today, and worries about the U.S.-China trade war was one of the major reasons cited for the global drops.

• Trade tensions were cited alongside “slowing global growth, rising bond yields” by the Wall Street Journal (paywall) to explain a 2.2 percent drop in the Dow Jones Industrial Average.
• And in China, trade tensions were cited alongside “a slowing economy and weakening currency” by Bloomberg (porous paywall) to explain the largest drop since February 2016 — “More than 1,000 stocks fell by the daily limit, or more than one in four,” and “The Shanghai Composite Index ended below 2,600, a level not even breached during market crashes in 2015 and 2016.”

U.S. Treasury Secretary Steven Mnuchin and Trump economic adviser Larry Kudlow are said to be especially concerned about the impact of the trade war on stock markets, so have been pushing for months to get trade negotiations back on track. Today, the Wall Street Journal reports (paywall) that they marked a small success:

• “The White House is moving ahead with plans for President Trump to meet with Chinese leader Xi Jinping at a multilateral summit in late November,” at the G20 in Buenos Aires, which just yesterday seemed a highly doubtful prospect.
• While Mnuchin and Kudlow are happy, China hawks such as trade representative Robert Lighthizer and trade adviser Peter Navarro are not: “The plan is to get Trump in a room with Xi, get a small win and declare an end to the whole thing” is how one source familiar with the negotiations skeptically described them.
• The grandson of Richard Nixon, Christopher Nixon Cox, is “one of the people involved in the planning” of the negotiations, the Journal says. Bloomberg reports (porous paywall) that Cox, who co-founded a consulting firm in New York focused on international businesses, is “likely to join the Trump administration as an economic staffer focused on trade with China.”

Of course, stock markets and their bumps are only partially related to the broader economy. This point seems somewhat lost on the American president, who bragged to Fox News this morning that China’s “economy has gone down very substantially and I have a lot more to do if I want to do it,” but not lost on Yì Gāng 易纲, the governor of the People’s Bank of China, who told Caixin that China is still on track for its goal of “around 6.5%” economic growth in 2018.

And some important parts of the U.S.-China economic relationship could already be permanently changed as a result of the Trump administration’s policies. The South China Morning Post has two reports that suggest:

• China may never buy American soybeans again, at least not in large quantities like they used to: “The China Feed Industry Association published a proposal on its website at the end of September suggesting the minimum content of soy meal in hog rations be trimmed down. The meal, which is made from soybeans, is a principal source of crude protein in animal feed.”
• “If demand for imported soy is somewhat reduced and trade partners diversified in the long run, that would be considered a win by many in China’s government… This is something policymakers have been keen to do for a while, but couldn’t under normal trade conditions. Trump’s escalation gave China’s policymakers an excuse to constrain US soy, forcing the Chinese industry to adjust,” said Even Rogers Pay, lead agriculture analyst at the consulting firm China Policy.
• “Officials are exploring the possibility of China becoming a member of the CPTPP,” the trade deal that replaced the Trans-Pacific Partnership, which the Trump administration pulled the U.S. out of.
• “Joining the CPTPP could become a tool to hedge against the US and help China establish a new trade circle in addition to the ‘Belt and Road Initiative’ and Shanghai Cooperation Organisation,” said Wang Huiyao, director of the Centre for China and Globalisation.

More trade war news:

• Currency concerns
  IMF chief Lagarde dismisses idea Beijing is manipulating the yuan as Washington turns up the heat / SCMP
  China to get status quo treatment in currency report / Politico
  “The Treasury Department unveils its semiannual report on foreign exchange rate practices on Monday, but don’t expect the administration to slap China with currency manipulator status. The report submitted internally to Treasury Secretary Steven Mnuchin did not recommend that Beijing be labeled a currency manipulator and continued to place China on a monitoring list, an administration official familiar with the report told POLITICO.”
• Detailed analysis of cyber espionage in the U.S., Australia, and Germany
  Hacking for ca$h / Australian Strategic Policy Institute
• State media reaction to chip-hacking story and Pence speech
  Bloomberg fake report coordinated with US trade war / Global Times
  Zheping Huang on Twitter: “Xinhua is going against @VP’s China speech like crazy – at least eight op-eds in one day.”

Previously in The China Project’s trade war coverage:

Trade war, day 97: U.S. Treasury tightens investment oversight, warns against yuan devaluation