Trump, Xi and the G20 Summit

The heavily anticipated G20 Summit is finally underway in Japan.

We have seen the global equity markets bounce around in response to chatter from both Beijing and Washington.

Economic data from both sides of the fence has shown cracks that have led to a material shift in FED forward guidance. The Chinese government has continued to provide support. It may be last chance saloon to avoid tariffs on all goods exported to the U.S, however.

How both leaders address other world leaders in the early part of the Summit could give some insights into what to expect.

Early News

In the early hours of this morning, news from the Summit suggests plenty of sideline action.

Trump

Trump has already held meetings with Japan, India and Germany’s heads of state. The U.S President will need to be on the charm offensive. Walking out of key meetings this time around may not be an option.

While the U.S President has been a stern advocate of protectionism, political isolation from the world stage would not suit his needs at this juncture.

The U.S Presidential Election campaigns have kicked off and, with the FED and central banks sounding the alarm bells, the odd auto factory is unlikely to be enough.

Trump will need to come away from the G20 with a string of positives to get his campaign off to a flying start. No one will care where the U.S equity markets are today, but voters will care when it comes to election day.

For U.S farmers, it’s an altogether different story, however.

Financial support from the Republicans was a stop-gap last month and Trump is not going to be able to keep filling the farmer coffers.

The U.S goods trade deficit widened from $70.92bn to $74.55bn in May, according to figures out of the U.S on Wednesday.

From Trump’s perspective, some form of an agreement to support soybean exports to China will need to be achieved. China may be too demanding, however.

China Premier Xi

The Chinese Premier has continued to maintain his negative views on protectionism at the G20 Summit this morning.

While the U.S has materially shifted on foreign policy, supporting protectionism, China has continued to open its doors to foreign investment.

Unfortunately for China, the Chinese economy alone is not enough to sustain the rest of the world excluding the U.S.

Japanese Prime Minister Abe has already been in talks with both Premier Xi and President Trump.

What to expect?

While Premier Xi will be looking to build both economic and political ties with other members of the G20, the might of the U.S can’t be ignored by the other 18 members.

Foreign policy on Iran, North Korea and trade will be key areas of discussion.

The EU is certainly not in a position to fall out of favor with the U.S President.  Canada will be in the same boat.

China’s more open-minded foreign policy approach means that other heads of state can focus more on addressing Trump’s concerns.

It may not all go according to plan, however. With protectionism, must come some degree of isolation. G20 members from the EU and, Germany in particular, will be all too aware of what’s around the corner.

Last week the global equity markets were convinced that the G20 Summit would deliver an end to the extended U.S – China trade war.

This morning, there may be a reality setting. While Trump and Xi may be able to sit across the table from one another, neither may be willing to budge on key demands.

China wants the U.S to cease the ongoing assault on Huawei and to remove tariffs. The U.S wants China to import more goods from the U.S, a tall order.

Will either side surprise the rest of the G20? Progress will need one to succumb to the threats and there has been no evidence of that…

The promise of more talks may be all that the markets will get. That can’t be a good thing. Even if Trump agrees to hold off on more tariffs, there will be a sense of inevitability.

This trade war has been going on for a year and neither side has been able to concede in key areas. There’s really no reason for either side to suddenly change tact. A global recession would certainly change the dynamics…

Premier Xi’s position wouldn’t be under threat should the economy face a material slowdown. For Trump, a U.S recession could bring down the curtain on re-election.

Many U.S voters were on the fence at the last time of asking. Those voters are far more likely to vote with their wallets this time around. That will at least be what Premier Xi will be hoping for…