How seriously should we take President Donald Trump's threat yesterday to ratchet up tariffs on Chinese goods at the end of this week unless a major round of talks taking place in Washington from Wednesday (which informal reports suggest China may now cancel or possibly slightly delayed and abbreviated) results in a full agreement?
The answer, as is so often the case, is that we simply can't be sure with the mercurial Mr Trump.
The reaction of US business and the equity futures markets (and markets in Asia this morning) to his two tweets both suggest that some, at least, are not dismissing his word. And, as James Politi and Courtney Weaver point out in a well argued 'on the one hand, on the other hand' assessment in today's Financial Times (subscriber access only), the recent performance of the US economy and the US stock market may have convinced Mr Trump that he has more margin in which to play hardball if push comes to shove with Beijing.
However, in the quest for further relatively minor concessions from Beijing this could equally simply be familiar negotiating tactics from a President who seems firmly to believe that the threat of tariffs will inevitably win the day. To which I would add:
- Mr Trump's need to sooth the China 'hawks' in his own Administration (who include his own top trade negotiator Robert Lighthizer); and,
- His related need, in the event of a deal, to fend off inevitable criticism from Democrats that he hasn't been tough enough, an accusation which they are already levelling at him in the tussle over ratification of the USMCA.
Furthermore, the President will wish to portray any deal as a personal triumph.
In short, as we have seen previously, Mr Trump's propensity to talk loud and carry a small stick (ie the reverse Theodore Roosevelt's philosophy) is not to be dismissed! And, however much room for manoeuvre he may think he has in terms of the US economy and stock market, if he does follow through on his threat, the Trumpian 'stick' would undoubtedly turn out to be a two-edged sword.
On balance, therefore, although Mr Trump's threats could backfire badly on him, consistent with the article I published last week, I still think striking a deal in the next few days is a better than 50% probability.