U.S. plays down expectations for Trump-Xi meeting with hard line

U.S. officials sought to play down expectations for a highly-anticipated meeting between President Donald Trump and China’s Xi Jinping this week, insisting the U.S. wasn’t prepared to compromise on its demands for meaningful Chinese economic reforms.

The two leaders are set to meet on the sidelines of the Group of 20 leaders’ meeting in Osaka, Japan, with senior U.S. officials telling reporters on Monday the encounter was likely to take place on Saturday.

The scheduling of the meeting, which came after a call between the two leaders last week, has raised hopes that they might be able to put trade talks that broke down last month back on track. Trump has threatened to impose tariffs on a further $300 billion in Chinese products including smartphones, laptops and children’s clothing if he doesn’t see any progress in a move that would sharply escalate the trade war.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke by phone with Chinese Vice Premier Liu He on Monday, the two countries said, with China’s commerce ministry adding they had agreed to continue communicating. No other details on the substance of the call were immediately available. The three are expected to meet in person in Osaka ahead of the Trump-Xi meeting to hammer out the final agenda.

Chinese officials this week said both sides need to be prepared to compromise for talks to succeed, but U.S. officials have so far maintained a hard line.

Trump has focused much of his ire on the U.S. trade deficit with China, which in goods alone hit a record of almost $420 billion in 2018, and has been pushing for more Chinese purchases as part of the talks. But in a briefing call Monday, U.S. officials said he was focused above all on securing real structural reforms in China to address U.S. complaints about intellectual property theft and the widespread use of industrial subsidies, among other things.

The president was comfortable that the tariffs he already had in place on $250 billion in imports from China meant he was in a strong position going into his meeting with Xi, the officials said, with those duties already forcing companies to relocate from China.

Trade negotiations broke down last month after the U.S. accused China of reneging on key aspects of the deal, leading to an escalation that has begun directly affecting large companies from both countries. Failure to reach even a temporary truce in Osaka risks leading to a modern-day cold war that could alter global supply chains.

U.S. Commerce Secretary Wilbur Ross last week downplayed the prospects of a major deal, telling Bloomberg TV the gathering was too broad an event to expect much progress. The best-case scenario laid out by officials and analysts from both countries is that the meeting might yield a pause in any new U.S. tariffs and a resumption of the talks, similar to the truce struck between Trump and Xi at the G-20 summit in Argentina late last year.

Stocks are pricing in about a 20% chance of a resolution in the trade war, Goldman Sachs Group Inc strategists wrote in a recent note to clients. That’s a change from mid-April, when markets had priced in an 80% chance of a deal.