THERE MUST BE SOMETHING IN THE WATER: A wave of good news has broken out — no government shutdown, hostage negotiations in Gaza, and an all-clear on interest rate hikes, proclaimed this morning by the Wall Street Journal’s Fed guru, Nick Timiraos. And now comes another positive narrative — relations between the U.S. and China may improve modestly this week.
SEVERAL HIGH-VISIBILITY ISSUES will be on the table today as Presidents Joe Biden and Xi Jinping meet in San Francisco. Considering China’s shaky economy, Xi may be more inclined to negotiate, according to several analyses this morning, including a useful piece in The Hill website, which lists major issues that may dominate a long day of negotiating:
* The White House has focused on the resumption of a direct military-to-military line of communication as a deliverable goal of the summit, after the Chinese severed the line in August 2022 following a visit by former House Speaker Nancy Pelosi to Taiwan. If there was better communications this past spring, it could have quickly defused tensions during the spy balloon episode, and this seems to be a relatively easy issue to negotiate.
* China’s role in global crises. Iran is a major irritant for Washington, and the most to hope for could be China playing the role of intermediary, sending a strong message to Iran and Russia that aggressive U.S. sanctions will stay in place — or intensify. That’s the stick; the carrot could be granting China some trade liberalization, perhaps even involving computer chips.
* Fentanyl, a huge issue. As we travel throughout the U.S. and Canada, we’re stunned to hear people tell us that fentanyl is ruining communities and lives. The U.S. has begun to indict Chinese fentanyl producers, and Xi could win enormous global support if he sent a signal to Chinese drug smugglers that a crackdown is coming.
IT’S TEMPTING TO CONCLUDE that today’s summit will be little more than a photo op, but we think Biden and Xi will issue a statement pledging to communicate more frequently on issues such as fentanyl. As for a possible armed conflict over Taiwan, we don’t see that happening; it’s in both country’s best interest to focus on other issues, primary trade.
WHAT TO SAY ABOUT THE CLOWN CAR on Capitol Hill? Most polls show Congress has an approval level of 20% or less, and that figure may be generous after this week’s cringe-inducing behavior by Republicans, who have resorted to violence or threats — as nerves fray after weeks of friction in the House.
THE PUBLIC IS SICK OF THE SHUTDOWN THREATS (so are we) and still another train wreck is possible by late winter. The credit rating agencies are watching. Say this for feeble Joe Biden — he’s the adult in the room as Republicans can’t even negotiate among themselves, raising a very serious issue: could aid to Ukraine and Israel stall this winter, sending a signal to China and other global powers that Washington cannot keep its commitments?
FOR NOW, WE’LL FOCUS ON THE GOOD NEWS — it looks like the Fed has engineered a soft landing, and speculation will erupt soon: when will the central bankers cut interest rates? That’s still months away, but it’s coming.
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