Markets took a dive on Tuesday after news that US President Donald Trump’s threat of new tariffs on Chinese goods was official policy – as of 12:01am Friday.

Investor sentiment moved swiftly from a belief on Monday that a Trump tweet heard around the world was just bluster to a realization that it might be more than that after comments from top US officials.

But hawkish Trump advisers signaled that there was some room for a compromise this week when talks resume in Washington.

Michael Pillsbury, who Washington insiders say maintains influence as an outside adviser to Trump, said on Tuesday that the sell-off presented an opportunity.

“The idea of buying on a dip could pay off handsomely if the talks make a lot of progress Thursday and Friday, even with the tariffs on, and then the market compensates and jumps up 500 points or more,” Pillsbury said in an interview on Fox Business Network.

Others noted that there was little chance the top Chinese negotiator, Vice-Premier Liu He, would travel to Washington if he did not have something substantial to offer.

“It makes little sense for Liu He to come to Washington only to tell Lighthizer, ‘Take it or leave it, you already have our final offer.’ That would definitely mean a new round of tariffs, and he could achieve the same by simply not coming at all,” Scott Kennedy, a China expert at the Center for Strategic and International Studies, wrote in an e-mail to Asia Times.

“Liu has likely received additional room to make concessions on several issues,” he added.

Former People’s Bank of China monetary policy committee member Daokui Li said that a deal, whether reached this week or later, is likely.

“I still see that agreement will be reached either by this Friday or soon after that. Why is that? It’s because the two sides, President Trump and China, are rational,” Li said in an interview with Bloomberg.

“President Trump appears to be crazy, but I call him rationally crazy. He wants to squeeze a better deal for the US, and he wants to appear to be … tough in front of US political stakeholders,” Li added. “At the end of the day he wants a deal.”

Both Li and Pillsbury agree on one point. The history of China’s relationship with the West presents challenges.

“Seen through the lens of Chinese history, strong monitoring and enforcement look like humiliation at the hands of the West,” Pillsbury wrote in a Wall Street Journal opinion piece.

The comments touch on an issue that Asia Times reported earlier this week as the most problematic. Chinese officials have thus far refused to accept terms that include a one-sided enforcement mechanism that allows the US to unilaterally impose punitive tariffs.

“Certain language can’t be put into the agreement. The language would appear that China behaves like the former government in the Qing Dynasty 170 years ago, dealing with the UK,” Li said, referring to China’s relations with Britain during the Opium Wars.

“The key is the rhetoric. The key is the semantics. The key is the legal language,” Li said.

Former Trump White House chief strategist Steve Bannon also suggested that a deal was in the works on several venues this week, including in an opinion piece in The Washington Post published on Tuesday.

“As Washington and Beijing wrap up months of negotiations on a trade deal this month, whatever emerges won’t be a trade deal. It will be a temporary truce in a years-long economic and strategic war with China,” Bannon wrote, playing down the scope of a deal while suggesting it was imminent.

Source: https://www.asiatimes.com/2019/05/article/trumps-china-hawks-see-trade-war-off-ramp/