Via Zerohedge

With equity futures gradually rolling over overnight, there was the obligatory dose of trade war optimism in this morning’s news flow, with Trump reiterating that China wants to talk, while China was said to be hopeful the US can create conditions for trade talks; this was followed by a CCTV report according to which U.S. delegates said they hope U.S.-China trade talks can achieve progress and reach a deal as soon as possible, while China’s premier Li was quoted as saying that China and US should find solutions to disputes based on consensus reached by leaders of the two nations, adding that “China treats domestic, foreign companies fairly” and “puts more focus on intellectual property protection”, noting that “companies including U.S. firms are welcome to increase investment in China.”

This was more than enough to stabilize the drop in futures. But a bigger problem may be emerging behind the scenes, as the true feelings of China’s president toward president Trump have finally emerged on the record.

According to Kyodo, President Xi Jinping voiced distrust of U.S. President Donald Trump during his meeting with the Japanese Prime Minister Shinzo Abe in June amid the U.S.-China trade dispute, a source close to the matter said Tuesday.

“I can’t believe what President Trump says” concerning trade negotiations, Xi told Abe during a meeting on the fringe of the Group of 20 summit in Osaka. And while Abe told Xi that Trump trusts the Chinese president, Xi continued to air his grievances about his U.S. counterpart, the diplomatic source told Kyodo News.

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The reason for Xi’s distrust: despite agreeing to Xi’s proposal on the phone to deal with Chinese telecommunication giant Huawei Technologies during the next working-level negotiations, “once the negotiations began, the U.S. side said that Huawei is not a trade issue but a security issue and did not deal with it,” Xi told Abe, pointing out that Trump’s remarks proved unreliable.

According to the Chinese Foreign Ministry, Xi had a telephone conference with Trump on June 18, during which he expressed China’s hope that “the U.S. side can treat Chinese firms in a fair manner.”

Xi further complained to Abe that while the Trump administration has repeatedly criticized Beijing for supporting state-owned companies with subsidies, “the U.S. is also providing Boeing with subsidies,” referring to the Chicago-based U.S. airplane manufacturer.

Last week, the United States slapped China with the first stage of a new round of tariffs that will see nearly all Chinese imports taxed. China retaliated on the same day with its own round of tariffs on U.S. goods and announced the following day its decision to lodge a case at the World Trade Organization over the latest U.S imposition of import duties on Chinese exports to the United States.

While the United States and China are planning to hold ministerial- level trade talks in October in Washington, it is uncertain whether there will be any breakthrough, especially with neither side trusting anything the other says.

Eager to claim a major trade victory to boost his 2020 re-election bid, Trump is likely to strengthen his hardline attitude toward China, according to Kyodo. But with no mutual trust between the two leaders, a major concession by Xi seems unlikely, making a prolonged conflict between the United States and China almost inevitable.

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Meanwhile, relations between Japan and China have been improving recently, with the two sides preparing for Xi’s first state visit to Japan planned for next spring.

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