China Trade: A Deal Takes Shape

https://trendmacro.com/system/files/reports/20180521TrendMacroLuskin-GI.pdf
Donald L. Luskin
Monday, May 21, 2018
It's only a "framework." But historic tax reform started that way, too.
US Macro
Asia Macro
Emerging Markets Macro
Europe Macro
Oil
Commodities
Mnuchin’s announced stand-down on tariffs is good news, but not a surprise. It’s what we said to expect: a peace negotiation conducted under the threat of war. The US-China communique says nothing officially about a rumored $200 billion in increased US exports, a highly aggressive stretch-goal. Mnuchin points to undertakings to sharply increase China’s purchases of US agriculture and energy commodities. US production can be ramped up, but energy exports are sharply constrained by bottlenecks in pipeline and port capacity. It’s a zero-sum game, with the US taking market-share from emerging market commodity producers. It’s trickier in non-commodity markets, such as civilian aircraft, for which this deal puts the US on a collision course with Europe. True reform of China’s tariff and non-tariff barriers, mentioned in principle in the communique and in speeches by the highest Chinese leaders, would be positive-sum reform that would lift expected growth world-wide.