China When? Worries Financial Markets

President Donald Trump has made it clear–repeatedly–that there won’t be an agreement to end the U.S.-China trade war until he has met with China’s President Xi Jinping.

And that’s got the market worried. Because the Trump administration’s deadline for raising tariffs on $250 billion in Chinese goods to 25% is March 1. And today the U.S. president told reporters that it was “unlikely” that he would meet with Xi before that March 1 deadline.

Last month, the White House indicated that Trump and Xi would meet in February, so current pronouncements are definitely something new. In recent days financial markets have wondered how Trump and Xi could meet before the March 1 deadline since Trump is scheduled to meeting with North Korean leader Kim Jong Un in Vietnam February 27 and 28.

The next round of talks between the Chinese and a U.S. delegation headed by Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer is scheduled for next week in Beijing. Concrete details on the status of the talks are very sparse.  What comments there are have been limited to general cheerleading like that of White House Economic Advisor Larry Kudlow who says the talks have a “good vibe” and leaks that indicate that the United States and China have made little progress on U.S. demands that China restructure its industrial policy, provide a meaningful improvement in protections for intellectual property, and end subsidies to Chinese companies in targeted “future technology” industries.

There is absolutely no reason that the Trump administration couldn’t extend the March 1 deadline–since creating that deadline was a unilateral act by the Trump White House.

On the other hand, there’s no guarantee that the administration would act to grant such an extension. And there are enough cynical investors and CEOs who think that the China trade hardliners in the Trump administration would like these talks to fail rather than to reach a compromise that doesn’t restructure the U.S.-China trade relationship to add an edge of worry to the financial markets and the economy.