Trump-Xİ summit was overshadowed by Syria and the North Korean missile launch - BBH

Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman notes that last week's meeting between the US and China's Presidents did not produce much fireworks or headlines and the missile strike on Syria and the North Korean missile launch tended to overshadow the first meeting between the leaders of the two largest economies.  

"We understood that both Japan and China have similar strategies for dealing with a mercurial and, perhaps, unpredictable US President.   Make small concessions, giving Trump a "victory," which buys some good will.  And most importantly, outlast Trump.  Recent rule changes in Japan's LDP will allow Abe be Prime Minister for three terms.  Some suspect that President Xi, the first core leader since Deng Xiaoping, may also be angling to serve a third term."  

"Earlier this year,  Trump and Abe struck an agreement to hold new trade talks led by US Vice President Pence and Japan's Finance Minister Aso.  We anticipated President Xi would agree to similar talks.  It is, after all, a low-cost concession.  Sure enough, a cabinet-level talks were agreed with an eye toward reaching an agreement in 100 days."  

"Press reports have discussed likely concessions by China, but nothing concrete from the US.  However, the Chinese concessions are low hanging fruit.  For example, China may lift the ban on US beef imports.  They were imposed in 2003 during a mad cow scare.  China could have lifted the ban years ago.  Before the Xi-Trump meeting, a group of nearly 40 US Senators encouraged the Trump Administration to get China to lift the ban on American beef.  The US runs a substantial agriculture surplus with China.  China is the largest export market for US agriculture produce, absorbing about a fifth of US agriculture exports."

"The other concession China likely makes will allow foreign firms to have a majority stake in banks and brokers.  Previously, under the Obama Administration, China seemed to have been moving in this direction, as a bilateral investment treaty was being negotiated.  The outcome of the election froze the talks, and it is not clear that the Trump Administration will allow their resumption."  

"It is also may not be such a significant concession either on ground Chinese financial institutions have become quite large, and their role as national champions will be difficult to break.  At the same time, foreign participation may bring the country best practices and take some pressure off some domestic institutions."  

"The US may seek another concession.  China levies roughly a 25% tariff on US vehicles.  China's auto market competes with the US to be the largest in the world.  The high tariff and large domestic market encourage foreign producers, like GM, Volkswagen, and Toyota incentives build cars and factories inside China. " 

"It is not clear what the US is offering in exchange.  China would like to have access to more high-tech goods; China is also concerned about its direct investment in the US.  China would, of course, like to avoid being cited as a currency manipulator in the US Treasury's semi-annual report that is due in the next few weeks.   Treasury Secretary Mnuchin as indicated that there is a process that will be followed.  The recently introduced quantitative definition includes a large bilateral surplus with the US ($30 bln+), a substantial overall surplus (3%+ of GDP), and persistent intervention to weaken the currency. " 

"The only criteria that China meets are the large bilateral surplus.  Its current account is less than 3% of GDP.  It has been intervening but to strengthen the currency.  Several US presidential candidates, including Bush, Obama, and Romney talked about citing China as a currency manipulator.  The US has not done so since 1994.  At first, being cited would require bilateral negotiations."