Ahead of Donald Trump-Xi Jinping meeting
US President Donald Trump is meeting China’s President Xi Jinping at his Mar-a-Lago resort later today. While Trump treated Japan’s PM Abe to golf, no such outing is planned for the leader of China. So, it is going to be all business, nothing personal.
The meeting for Xi Jinping
It is an opportunity to establish a personal rapport with Trump and prevent an imminent trade war that threatens to pull China's economy to pieces and make the current economic slowdown more painful. There is also a potential risk for Xi’s reputation as General Secretary of the communist Party of China. Some party members are not satisfied with Xi’s reform plans. They will be searching for some “ammunition” in Trump-Xi meeting for the political debates in which they will try to thwart the introduction of new reforms. A conflict with the US leader could potentially undermine Xi’s leadership credential he has been forging during his tenure as China’s President.
The meeting for Trump
It is an opportunity to rebuke Chinese government for its manipulation of the currency, unfair trade policies, militarization of the South China Sea and failing to make more efforts to stop North Korea’s aggression. Most likely US President will use the One-China policy regarding Taiwan as a bargaining chip to strike a better trade deal with China.
China will probably try to deny Trump’s evidence-free accusations of currency manipulation. And it would be fair. While yuan was long viewed as undervalued, now it is no longer the case. In the recent years, Beijing allowed the renminbi to appreciate. Moreover, if China refused to control the exchange rate of its nation’s currency, it would have considerable adverse ramifications for trade and global growth.
What would be the market reaction?
In the last interview with the FT Trump said that he wouldn’t be surprised if he and Xi did something that would appear “really dramatic and good for both country”. It might happen given the Trump’s willingness to flaunt his influence after numerous failures on the legislation front.
If this happened, it would definitely be positive for traditional safe-haven currencies, gold and Treasuries.