Trade warriors: What to watch for as Trump and Xi meet at G20

By Rachel Layne

/ MoneyWatch

Companies call for end to U.S-China trade war

President Donald Trump is scheduled to sit down with Chinese President Xi Jinping on Saturday in Japan as the G-20 summit concludes, a pivotal meeting that may mean a path out of an escalating trade war if things go well.

If things don't go well, it likely means U.S. consumers can expect to pay more for everyday goods — and even serve as collateral damage in an entrenched trade war that has broader-reaching consequences for the global economy.

Here's what to look for on Saturday.

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A pause, if not an agreement

Chances of a ceasefire are about 50% "with neither an unwinding nor an escalation," Mark Haefele, the global chief investment officer at UBS's global wealth management unit, wrote in a note to clients this week. He pegged chances of talks falling apart and the trade war escalating at 35%, with just a 15% chance for a "de-escalation" in tensions following the summit.

He's not alone. Raymond James analyst Ed Mills is predicting "a truce on escalation with potentially some minor concessions from both sides" that pave the way for more talks, he said in a note this week.

Consumers could face higher prices under new China tariffs

Height Securities analysts see a pause of 90 to 120 days or even an "open-ended" period with Mr. Trump promising to pull the trigger on more tariffs if he feels China isn't cooperating.

A short meeting may not bode well for a speedy resolution, and the world is watching. In Argentina last December, Mr. Trump and China's Xi met for more than two hours, leading to further negotiations before talks fell apart this spring, Mills noted.

"I will tariff … maybe not at 25% but maybe at 10%"

Mr. Trump in recent days has swung from optimism toward the meeting and threatening further escalation – some of it tempered from previous threats, including imposing tariffs on roughly $300 billion in imported Chinese goods that aren't already subject to levies the White House has imposed over the past year. The U.S. imports roughly $600 billion in goods from China annually.

"My Plan B is that if we don't make a deal, I will tariff. And maybe not at 25% but maybe at 10%," Mr. Trump told Fox Business Network on Wednesday before leaving for the summit. Larry Kudlow, Mr. Trump's top economic adviser, on Thursday told CBNC there are "no preconditions" set ahead of the meeting, adding the White House could move ahead with the new tariffs.

Mr. Trump imposed an increase to 25% on $200 billion in imported Chinese goods after talks disintegrated earlier this year, just as Wall Street was betting an agreement was close.

When did Trump's love for tariffs start?

A Chinese foreign ministry spokesman in Beijing said China intends to defend itself against such U.S. moves to penalize it over trade friction. Such threats "won't work on us because the Chinese people don't believe in heresy and are not afraid of pressure," the spokesman told the Associated Press.

Small concessions that could mean a truce

China could "dial back" threats to ban exports of rare earths used in a wide swath of industrial and consumer products like mobile phones, or place firms like FedEx on an "unreliable entity" list that targets U.S. companies, wrote Mills, the Raymond James analyst.

The U.S. isn't likely to pare restrictions on Chinese access to U.S. technology, but could use other negotiating chips such as a potential arms sale to Taiwan, Mills wrote.

But some concessions on tight U.S. rules placed on Chinese telecom company Huawei may be needed to get China to a negotiating table such as a suspension of those restrictions during a truce, UBS's Haefele wrote.

Yet the U.S. is still demanding "major changes" to Chinese industrial policy, intellectual property theft and "unfair state subsidies," Jennifer McKeown, head of the global economic service at Capital Economics, wrote in a note. At the same time, China rejects the IP accusations and has said progress can't happen until the U.S. lifts existing tariffs, she said.

"So even assuming that a truce is reached this week, we doubt that it will last for long," McKeown said.

U.S. consumers to bear the brunt of tariffs

Contrary to what Mr. Trump has claimed, it is U.S. companies — not the exporting countries — that pay tariffs on goods and services imported from China and elsewhere. While some firms can absorb the higher costs, most consumer and tech companies opt to push at least some of the increased expense onto consumers. That means higher prices.

U.S.-China trade war could cause price of fireworks to skyrocket

Americans would feel the pinch on everything from mobile phones and laptops to apparel, fireworks and Christmas ornaments. Even bibles and the popular Instapot could cost more, based on testimony from seven days of hearings from hundreds of companies that testified in Washington this month, many saying the new round of tariffs would hit them — and consumers — hard.

If Mr. Trump's full tariff intentions are realized, it could cost a typical three-person family in the U.S. $2,200 annually in higher prices for goods, according to an estimate from the Peterson Institute of International Economics' Gary Hufbauer.

Companies are already paying the price

New preliminary research from Harvard Business School shows plenty of U.S. companies are already bearing the brunt of Mr. Trump's tariffs on Chinese goods imposed so far. In addition to paying the levy on imports, companies that want to export to China have been lowering prices to sell inside the second-biggest economy. Most consumers there haven't felt a big bite from tariffs imposed so far.

At the same time, China is lowering tariffs for other countries as it seeks to broaden its reach and strengthen global relationships, according to recent research from PIIE's Chad Bown. That gives countries outside the U.S, including their farmers and their businesses seeking to do more business in China, an advantage over U.S. exporters.

If the U.S. moves forward with imposing tariffs on the remaining $300 billion of Chinese imports, world economic output could be reduced by 0.4% next year, Fitch Ratings said in a Wednesday research note.

First published on June 27, 2019 / 5:35 PM

© 2019 CBS Interactive Inc.. All Rights Reserved.

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