Wall Street too optimistic going into U.S.-China tariff meeting, says Longview's Dewardric McNeal

Key Concepts:

• US-China trade negotiations
• Tariffs
• XI Jinping's position
• Negotiation process
• Negotiation issues (fentanyl, buying more goods, market opening)
• Leverage in negotiations
• Pain points
• US debt market

1. China's Position and XI Jinping's Inclination

• Both the US and China need and want a deal, including XI Jinping.
• It's premature to expect a deal this weekend.
• The Chinese side will focus on three key areas: people, process, and issues.

2. People Involved in the Negotiation

• The Chinese want to understand who they are dealing with across the table.
• They are familiar with Jamison Greer (chief of staff for Bob Lighthizer in the 2018 trade war).
• They don't know Scott Bessent and will want to assess him.

3. Negotiation Process

• The Chinese want to establish a process for how the negotiations will proceed.

4. Key Issues for Negotiation

• The most important aspect of this weekend's meeting is defining the issues to be negotiated.
• Trump has mentioned opening up China, fentanyl, and buying more goods.
• If the focus is on fentanyl and buying more goods, it will be an easy lift for the Chinese.
• If the focus is on opening up the market, the negotiation will be long and difficult.

5. Leverage and Pain Points

• Neither side has a clear advantage based on numbers alone.
• The negotiations will likely come down to who can withstand the most pain.
• The Chinese may have an advantage in this area, as their people have shown a willingness to suffer for the national good (e.g., during the zero-COVID period).
• The US may face shortages in the coming weeks (4-8 weeks), which could affect their ability to withstand pain.

6. US Debt Market

• The US debt market is a point of concern, with comments from the White House and the Treasury Secretary about the debt ceiling.

7. Conclusion

• The US-China trade negotiations are complex and will likely be protracted if they involve significant structural changes like opening up the Chinese market. The initial meeting will focus on establishing the key players, the negotiation process, and, most importantly, defining the specific issues to be addressed. The ultimate outcome will depend on each side's ability to withstand economic pain, an area where China may have an advantage due to its population's demonstrated resilience.