Hot Take on the Trump/Xi Trade Meeting

Trump and Xi have basically agreed to extend the “truce” or “reset” negotiated in May for one year. Most of the trade assaults put in place since then are being removed for a year, including China’s new extraterritorial export controls regime for rare earths, the US’s expanded export controls on technology products, and reciprocal port fees. The slight improvement over the May agreement is the reduction of the US fentanyl tariff from 20% to 10%. Trump says China has committed to stemming the flow of fentanyl, and buying agricultural and energy products from the US – all commitments made, but not fulfilled in the “Phase One Trade Deal” in 2019. As of this writing markets are indifferent – good: nothing blew up. Trump has achieved his objective of moving gradually to economically decouple from dependency on Chinese manufacturing, avoiding an economic shock such as an embargo on rare earths. Economically, high tariffs are a deadweight loss. But the Supreme Court will likely take care of that, with oral arguments coming next week.