Trump-Xi Trade Deal Hits Hurdle After APEC Canceled

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President Donald Trump’s plan to ink the first installment of a trade accord with Xi Jinping next month was thrown into question Wednesday after Chile canceled an upcoming summit where the two leaders had planned to meet.

The cancellation -- announced earlier Wednesday by Chile as social unrest continued to rock Santiago -- appeared to catch the White House off guard. But the administration insisted that it would continue to press to finalize the “phase one” agreement in coming weeks.

It wasn’t clear whether American officials would be able to find an alternate venue for a meeting with Xi. Organizers of the Asia-Pacific Economic Cooperation summit indicated they had no plans to hold the event elsewhere. Negotiators from both sides will have a phone call on Friday, Xinhua reported Thursday.

Other Locations

Three people familiar with the state of U.S.-China discussions said the teams have been looking at other locations in recent weeks as demonstrations that caused the cancellation of the APEC summit escalated in Chile.

“We look forward to finalizing Phase One of the historic trade deal with China within the same time frame, and when we have an announcement, we’ll let you know,” White House spokesman Hogan Gidley said in an email.

The Chinese Embassy in Washington did not immediately respond to a request for comment. Robert Lighthizer, the U.S. trade representative leading the talks with China, said “no comment” when asked by reporters Wednesday how the cancellation would change plans.

The prospect of a Trump-Xi meeting in Santiago next month had buoyed markets as investors looked for signs that an end to the multi-year trade war between the two nations is in sight. The S&P 500 Index of U.S. stocks briefly fell to a session low after news of the meeting’s cancellation.

Phase One

“I always looked at Chile as just the location where Trump and Xi would just happen to be at the same time,” said Brendan McKenna, a currency strategist at Wells Fargo (NYSE:) Securities in New York. “If there is deal in place that both sides are willing to sign, I think they find a new way to finalize it anyway.”

U.S. and Chinese officials have been working for weeks on filling in the details of a narrow “phase one” deal announced by Trump after an Oct. 11 Oval Office meeting with China’s top negotiator, Liu He.

Both sides have recently said they’re making significant progress on a deal that would see China resume purchases of U.S. farm products and make commitments on intellectual property and currency, in exchange for a commitment from Trump not to impose further tariffs on Chinese goods. But wrapping up even that limited work by the Nov. 16-17 summit in Chile had always been seen as a challenge.

While it is a new hurdle for both the Trump administration and China, the forced delay of the meeting between the leaders gives negotiators more time. But a shifting deadline could also reduce pressure on both sides to cut an initial deal and move on to more comprehensive talks.

“If the two sides intend to conclude a phase-one deal, the cancellation of the summit is a mere logistical headache, not one that can spike the deal on its own,” said Jude Blanchette, a China expert at the Center for Strategic and International Studies. “If, however, one or both sides don’t feel they can get to a deal by mid-November, the cancellation of the summit is a great excuse to buy more time.”

Uncertainty Looms

The risk for businesses and financial markets is that the cancellation of the APEC meeting will only extend uncertainty that has put a damper on investment and growth around the world. That may be driving Trump’s eagerness to sign the deal himself and prove to a skeptical world and voters in the U.S. that his disruptive tariffs have yielded results entering his re-election campaign.

“This makes it likely that lower level talks will continue to drag on with no concrete results,” said Edward Alden, a senior fellow at the Council on Foreign Relations.

The U.S. government would normally help Chile resolve its political crisis so the summit could proceed, Alden said. “But instead the White House is absent with the impeachment fight and crises of its own making,” he said.

Trump has said repeatedly that he was optimistic the trade deal would be finalized at the summit.

“The risk here is that if the summit now is postponed then that at least suggests that the trade war uncertainty might be hanging over us for longer,” Torsten Slok, chief economist at Deutsche Bank AG (DE:), said in an interview on Bloomberg Television Wednesday. “It raises the risk that we could never see a phase two or phase three and therefore the uncertainty would basically not be going away.”

(Corrects day of Xinhua statement in third paragraph.)

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