None other than Larry Kudlow, Trump’s top economic advisor has expressed optimism about just such a deal saying on November 27th that, “There’s a good possibility we can make a deal…President Trump has indicated he is open – now we need to know if President Xi is open.” And on November 29th Trump said he was “close to doing something with China on trade.” Further good news is that Peter Navarro, the most hawkish trade warrior in the administration, will, according to Reuters, now be attending that Saturday working dinner meeting. Earlier he had said he would not causing some analysts to be skeptical that any major breakthrough could be reached. With Navarro now in the meeting, that means the dinner table will literally be set for the very handshake deal that Wall Street has been praying for.

While there remains a lot of uncertainty surround that Saturday dinner meeting, there is also cause for optimism. That stems from the fact that China’s economy has been slowing in recent years, hitting its slowest growth rate in a decade last quarter (and expected to keep slowing into next year). That wasn’t all from the trade war since thus far US tariffs on Chinese goods have largely been offset by the falling Chinese Yuan. Rather China’s been facing a contracting labor force since 2014 (due to its decades-long one-child policy, now revoked), and the government’s efforts to reduce economic growth dependence on debt.

However, the growth rate has now slowed to near the 6% limit the government considers dangerous for political stability, and thus Beijing has ordered state-owned banks to reverse course and deploy over $150 billion in extra lending as a form of stimulus. And keep in mind that the US threatened 25% tariffs on $200 billion in imports that go into effect January 1st means that China’s growth headwinds are only mounting. 25% tariffs on all Chinese imports to America would be an even bigger blow, and Trump has indicated that should no deal be struck soon, then he could announce the final $267 billion round of tariffs mid-December. The 90 day comment period means those would go into effect mid-February.

3What about the US perspective? Well, President Trump has certainly been aggressive in his stated belief that a “trade was is good and easy to win”. However, the reason that he’s been making more overtures to resolving the trade war is that the strong US economic growth he was expecting to let America ride out this conflict is now fast losing steam. In Q2 GDP grew 4.2% and 3.5% in Q3 (second estimate just released from the Burea of Economic Analysis). Q4’s growth estimates, based on leading economic indicators and economic reports have not been promising.

Here’s what I mean by that…

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