Goldman: The "Most Likely" Outcome Of The Trump-Xi Dinner Is More Escalation | WHAT REALLY HAPPENED

Goldman: The "Most Likely" Outcome Of The Trump-Xi Dinner Is More Escalation

Chinese President Xi Jinping and US President Donald Trump, each accompanied by senior officials (with uber China-hawk Peter Navarro present), will dine together Saturday on the sidelines of the G20 conclave in Argentina. Market participants are intensely focused on the leaders’ meeting as a potential inflection point in the escalating economic tensions between the two countries.

And while many have expressed hopes that at least some tentative thawing in relations will emerge as a result of tomorrow's meeting, Goldman Sachs disagrees, and in a Thursday note said that a continued escalation of the U.S.-China trade war would be the "most likely" outcome of the meeting.

In previewing the three possible outcomes of the Saturday dinner, Goldman writes that it sees three basic scenarios for what happens after this weekend.

The first and in Goldman's view most likely outcome, is continuing on the current path of “escalation”— tariff rates rise to 25% on all imports currently under tariff, and tariffs are extended to remaining Chinese imports.
A close second is a “pause”, where existing tariffs remain in place but the two sides agree to keep talking with escalation put on hold.
A “deal”, which Goldman thinks is unlikely in the near term, would involve complete rollback of the current tariffs.

The reason why Goldman is surprisingly pessimistic on the outcome is because there has been a growing sense among US policymakers that China has benefited disproportionately from the bilateral economic relationship, effectively supporting a hard line stance against Beijing.

This view has been articulated forcefully by President Trump, who has said for example “China has taken advantage of the United States for many, many years”, but has adherents in both political parties.

Most obviously, the US trade deficit with China has widened to new highs .
The US endured a huge retrenchment in manufacturing employment after China’s entry into the WTO, in contrast to expectations at the time.

Foreign companies operating in China have repeatedly expressed frustration with the business environment and perceptions of a non-level playing field.
Meanwhile, China has seen enormous improvement in material standards of living over the past two decades (accounting for the bulk of the reduction in global poverty over this period)—reflecting in part the spillovers from strong export growth.