CHINA DEAL SKEPTICISM ABOUNDS: It’s day two of trade talks in Shanghai, but China watchers are expecting Washington and Beijing to stay in trade deal purgatory until after the 2020 presidential election.

“I don’t think there is any significant chance for a deal between the U.S. and China for the remainder of Trump’s term,” said Scott Kennedy, a senior adviser and China expert at the Center for Strategic and International Studies. “I think the Chinese have decided they don’t want a deal.”

He said the upcoming annual confab of Chinese leadership this month at the seaside city of Beidaihe, China, is likely to reinforce the view that it’s too risky to negotiate with this administration. He added that “a major deal that would constrain Chinese industrial policy is something they’re not interested in.”

Status quo in Shanghai? Michael Pillsbury, a senior fellow at the Hudson Institute and outside adviser to the Trump administration, said there are two broad sets of options. The two sides could stall and play for time while avoiding a major confrontation, or Trump could escalate the trade fight by imposing a 25 percent tariff on all remaining Chinese imports in an effort to pressure China toward a deal in the near term, he said.

Trump has said China is holding out on a deal until after the 2020 election but warned on Tuesday that he will be much tougher on the country “if & when” he is reelected.

Four questions: Pillsbury said the Shanghai round of talks must answer four questions: How far is China willing to backtrack on its reneging from May? Will China purchase more U.S. agricultural products? To what degree is China willing to make reforms demanded by the U.S.? What could an enforcement mechanism look like at this point?

TRADE TENSIONS BEHIND THE FED’S EXPECTED RATE CUT: The Federal Reserve is widely expected to cut interest rates this afternoon for the first time in more than a decade — a move that will be in no small part due to growing global trade tensions resulting from Trump’s policies, which have helped fuel a slowdown in manufacturing worldwide.

“All Trump had to do was keep up geopolitical trade uncertainty for a while and he’d get the Fed to cut rates,” said Ed Yardeni, president and chief investment strategist of Yardeni Research Inc.

Source: https://www.politico.com/newsletters/morning-trade/2019/07/31/2020-democrats-clash-over-trade-463717