It’s time for markets to end their illusions about a US-China trade deal – CNBC

Trump had been wagering he had greater leverage because of the strong U.S. economy, with growth at 3.2% and unemployment at historic lows. At the same time, he reckoned the Chinese economy was fragile, based on its 2018 performance, and that its leaders ultimately would make the required concessions.

By contrast, XI represented a conviction among many in China that Trump would need a “win” that would reduce the deficit and create U.S. jobs before 2020 elections, and thus his negotiators would blink first. Xi also had grown more confident after a first quarter economic rebound as his government’s stimulus measures took hold and helped produce 6.4% growth.

Tweets from Hu Xijin, editor-in-chief of the Chinese state-run Global Times, showed how China’s position hardened throughout the week. While Hu’s posts aren’t as authoritative as Trump’s tweets, he has become a fairly accurate indicator of what Chinese leaders are thinking.

At 8:47 a.m. Thursday, he tweeted that someone from the Chinese side “who knows the trade talks well” said that there was zero chance of a deal by Friday.

At 11:09 a.m. he tweeted: “China has fully prepared for an escalated trade war. It is a new strategy of China to engage in trade talks while fighting a trade war. I think China bets on the fact its politics is more powerful than US politics. Trade war will be decided by domestic politics eventually.”

Then a little more than two hours after that, at 1:17 p.m., he put it all into perspective: “More and more Chinese now tend to believe the current US government is obsessed with comprehensively containing China. A trade deal, even if reached, will be limited in actual meaning and could be broken constantly. So they support being tough on the US, giving up an illusion.”

A lot of illusions are dying this week.

After talks ended on Friday without progress, Hu brought down the curtain on the week: “Based on what I know, Chinese side insists on a few core points: US side should remove all additional tariffs, amount of purchase the US requests should be in line with reality; the text of the agreement must respect sovereignty and dignity.”

Frederick Kempe is a best-selling author, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global affairs. He worked at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-serving editor of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Follow him on Twitter and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.

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