What markets have misunderstood since the negotiations resumed last December is that the talks had become just one of many events of a new era of geopolitical and systemic competition that will define our times, writes Fred Kempe.
Financial markets should abandon any remaining illusion that U.S.-China trade talks are a time-constrained, tradable event that ultimately will result in a deal reassuring investors. Near dead is the notion that both sides would inevitably compromise because they so badly need agreement for their own political and economic purposes.
Escalated tensions of other sorts went less noticed. On Monday, two U.S. warships sailed within 12 nautical miles of disputed islands in the South China Sea, the third time this year Washington has challenged China's maritime claims. At a 5G security conference in Prague a few days earlier, the U.S. and its allies drilled down on the dangers posed by the Chinese telecom giant Huawei – even as its CFO remains in Canadian custody.
Last weekend, it's a safe bet that Trump didn't know about the historic Chinese anniversary that made his tweeted trade bombshell even more inflammatory. His decision to turn the tariff screws tighter coincided with the 100th anniversary of Chinese student protests that then became the legendary May Fourth Movement.
May Fourth Movement activists, of whom many became Communist Party leaders, would have been rolling in their graves if negotiators had given that kind of ground to American rivals on their centennial. For a leader like Xi – who has staked his legitimacy on ending what his supporters see as China's"century of humiliation" at the hand of foreign powers – the on-again and off-again trade talks had become about so much more than trade.
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