Breakingviews - U.S. stocks daze Trump into folding on China

U.S. President Donald Trump attends the National African American History Month Reception at the White House in Washington, U.S., February 21, 2019. REUTERS/Jim Young

HONG KONG (Reuters Breakingviews) - U.S. President Donald Trump’s hard line on Beijing is softening by the minute. He has tweeted that he will delay hiking tariffs on $200 billion of Chinese goods, citing “substantial progress” on trade talks. He’s easing up on telecoms giant Huawei too. Stock market wobbles have pushed the president toward a quick-and-dirty settlement that will empower Chinese conservatives.

Washington’s move to bring in broad-based duties against Chinese goods rattled U.S. equities in 2018, and investors fretted that the two great powers were on the verge of a protracted economic cold war - one which Alibaba founder Jack Ma warned could last 20 years. But while the American economy has shown some signs of fragility, China, the world’s largest exporter, faces the prospect of a more painful drop. The S&P 500 fell 18 percent from a peak in early 2018 to a trough in December; China’s CSI300 shed over a third of its value over the same period.

Trump, sensitive to share moves, appears to have lost appetite for a fight as the 2020 election season approaches. He has ended sanctions on Huawei peer ZTE, made happy noises about soybean orders, and signalled he might stop attempts to extradite Huawei executive Meng Wanzhou from Canada. Markets have reflected that adjustment: the S&P 500 is up around 11 percent so far this year; China’s CSI300 is up over 20 percent. But while Trump will find some validation here, in both cases other economic changes contributed too, in particular de-facto monetary easing in China and signs of dovishness at the U.S. Federal Reserve.

Deep-rooted bipartisan resentment against China will not be eased by shallow compromise. Beijing has yet to satisfy many conditions under which it was allowed to join the World Trade Organization, and President Xi Jinping has continued to strengthen the state’s role in the economy - the opposite of what trade partners want.

Most American citizens gain little from stock rallies. However, they have jobs to lose if Chinese enterprises put their employers out of business using cheap credit from state banks, and stolen intellectual property. A softer U.S. position also weakens the hand of Chinese officials who want the very structural reforms that hardliners like U.S. Trade Representative Robert Lighthizer are pushing for. An easy accommodation may benefit neither side in the long run.


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