Thread by @Brad_Setser

Glad to have a bit of company. Trump's tweet surprised me too - until today, it seemed that the U.S. and China were marching toward a deal.

(source: wsj.com/articles/trump…)

a few thoughts:

1/ With hindsight, the criticism of the apparent deal that leaked last week should have been given a bit more weight. It seems less like leaks laying the ground for a deal, and more like an attempt to appeal to the boss to reconsider ...

2/ Lesson I have taken from the last 9ms is that it is comparatively easy to threaten China with broad-based, almost prohibitive (25% has much more impact than 10% it seems) tariffs, but much harder to carry out the threat and deal with the consequences.

3/ The bulk of US imports from China go into supply chains that support the profits of US firms, so carrying out the threat = a hit to both US consumers and the stock market. The CW has been that Trump didn't want to risk the rally over the last few months ...

4/ So my gut is (still) that both sides have an incentive to find ways around the Friday deadline and push the clock back ...

5/ but, as @niubi has pointed out, there is also a personal dimension to all this ... Trump's tweet presumably was designed to put pressure on China to come forward with more concessions, but is also puts China's chief negotiator in a very difficult position internally

6/ that's why conventionally you don't make such threats in public if you want a deal ...

it makes it almost impossible for Liu He to make concessions in DC this week without appearing to be caving.

7/ But I confess to be flying blind right now ... I had a theory of the case (heading towards a not so great deal b/c Trump wasn't willing to put the stock market rally at risk) that may/ may not still be true.

Trump may be being Trump -- his style supposedly is to be unpredictable in the lead-up to a deal. But China is also China -- as the WSJ notes, it doesn't want to appear to reward threats ...

(e.g. I am surprised ... and don't fully understand the tactics )