This is where things stand in trade negotiations between the U.S. and China: The two sides are clashing over talks about their talks. 

Stocks swooned Tuesday after the FT reported that Trump administration officials turned down an offer from a pair of Chinese vice ministers to meet this week. “This week’s planned trip by Wang Shouwen and Liao Min was intended to pave the way for a higher-level meeting in Washington on January 30 and 31 by Liu He, China vice-premier, and Robert Lighthizer, US trade representative,” the paper’s Tom Mitchell, Yuan Yang and James Politi wrote. “But, according to people briefed on the negotiations, US officials cancelled this week’s face-to-face meetings with Mr Wang, a vice-minister of commerce, and Mr Liao, a vice-minister of finance, because of a lack of progress on ‘forced’ technology transfers and potentially far-reaching ‘structural’ reforms to China’s economy.”

Top Trump economist Larry Kudlow denied the report in a CNBC interview. “There was never a planned meeting … There were no other intermediate meetings scheduled,” besides Liu’s visit at the end of the month, he said. “There’s no cancellations. None. Zero.” The comments prompted a late stock market rally, and the Dow Jones industrial average closed down 1.2 percent, off lows of a nearly 2 percent decline. 

Investor sensitivity to trade talk headlines is only likely to increase as the administration’s March 2 deadline for the negotiations approaches. Barring a deal by then, tariffs on $200 billion of Chinese imports will spike from 10 percent to 25 percent. 

But there’s a real chance the two sides head off new hostilities, and it runs through the Oval Office. As we wrote here this month, President Trump could even strike an agreement with Beijing before he reaches one with congressional Democrats to reopen the government. The Chinese are plainly eager to reach such a quick cease-fire. With growth at home slowing to a relative crawl, the country can’t afford a protracted war.

And as keen observers of American politics, they know Trump wants a win he can tout and that will reassure jittery markets.

In that spirit, Beijing made an offer this month to close the bilateral trade deficit — the subject of Trump’s most frequent complaint about the trading relationship — by breaking out its checkbook. The offer, per Bloomberg News, was to go on a “six-year buying spree to ramp up imports from the U.S.” and boost their purchases of American goods “by a combined value of more than $1 trillion over that period,” eliminating the trade gap in the process. (They may be using other means to sweeten the pot for Trump: The Chinese government just approved five new trademarks for Ivanka Trump’s company, the AP reports.)

Trump officials responded by asking the Chinese to “do even better,” and erase the imbalance in two years, Bloomberg reported. It’s not clear that would be possible, and the offer already likely runs afoul of World Trade Organization strictures.

Still, the prospect of the president jumping at that opportunity is worrying China hawks in his own orbit, led by Lighthizer. Trump’s trade ambassador “has expressed concern to colleagues and business groups that Mr. Trump could accept a watered-down deal that reduces the trade deficit but offers only symbolic structural changes to help end the trade war and lift the stock market,” the New York Times’s Alan Rappeport reports

To the administration’s hardliners, the $1 trillion bounty Beijing is offering is too cheap, because they see the Chinese doubling down on abusive practices to help them leapfrog the U.S. in a number of emerging technologies.

For example, while the Chinese have been downplaying their Made in China 2025 plan — their strategy for mastering ten next-generation industries, including robotics, aerospace, electric vehicles, and biotech — a new report from two American business groups finds they are quietly forging ahead full-steam.

The Wall Street Journal reports the 142-page report from U.S. Chamber of Commerce and the American Chamber of Commerce in China found, “evidence of ‘a deep, concerted and continuing effort’ by provincial officials to pursue” the strategy. “The report gives U.S. negotiators more evidence to press for changes during talks with the Chinese delegation.”

Chinese negotiators, meanwhile, are so far refusing to engage on the structural reforms Trump officials are demanding.

On the question of forced technology transfers to Chinese companies, for one, they won’t acknowledge the existence of the practice, much less haggle over how to end it, per the FT. “They also argue that Beijing’s recent offer to improve market access for foreign investors in certain sectors — and strengthen protection of intellectual property — should address US concerns. While preparations for Mr Liu’s visit to Washington next week are continuing, the Trump administration’s refusal to receive Mr Wang and Mr Liao this week shows how large a gap still exists between the two sides’ positions.”

Indeed, Sen. Charles Grassley (R-Iowa), the new Senate Finance Committee chairman, told reporters last week that Lighthizer told him there “hasn't been any progress made on structural changes that need to be made.”

Trump, though, gets the final word.

And he sounded upbeat over the weekend. “Things are going very well with China and with trade,” he told reporters. “There were some false reports about sanctions being removed. We have taken in tremendous amounts of money in the United States because of the sanctions. And we’ll see how it goes.. But I think China has been — we’ve really had a very extraordinary number of meetings, and a deal could very well happen with China. It’s going very well.”



Deal or no deal? Senate Majority Leader Mitch McConnell (R-Ky.) and Senate Minority Leader Chuck Schumer (D-N.Y.) have agreed to bring to the floor on Thursday two measures that would immediately end the shutdown. The New York Times's Sheryl Gay Stolberg reports that one of the bills includes $5.7 billion for Trump's border wall, while the other omits funding for the wall in favor of reopening the government through Feb. 8. More from the Times: “'People are saying isn’t there a way out of this mess, isn’t there a way to relieve the burden on the 800,000 federal workers not getting paid, isn’t there a way to get government services open first and debate what we should do for border security later?'” Mr. Schumer said. 'Well, now there’s a way.'”

-- But both are show votes intended to demonstrate what cannot pass the Senate instead of what can (anything to reopen the government needs 60 votes.)

—The agreement came as Senate Democrats outright rejected the deal proposed by the president to temporarily extend protections to young undocumented immigrants in exchange for wall funding. From The Post's Erica Werner, John Wagner and Jeff Stein:  “Hoping to entice some Democrats to support a new Senate proposal, Trump offered a 3-year pause in his efforts to end immigration rules that shield some immigrants from deportation. The rules are a Democratic priority, as they protect the 'dreamers,' a group that includes 700,000 young people brought illegally to the United States as children . . . But the Supreme Court on Tuesday weakened Trump’s offer, saying it would take no action on lower court rulings that had blocked Trump from ending DACA.”

— Meanwhile, Trump is forging ahead dueling versions of his State of the Union address slated for Jan. 29, despite a request from House Speaker Nancy Pelosi (D-Calif.) to postpone it because of the shutdown. The Post's Seung Min Kim: “Trump is preparing two versions of his annual speech — one that could be delivered in Washington and another that would be held somewhere else in the country, according to a senior White House official. The administration is trying to do advance work to prepare for an address at the Capitol, but as top House official, Pelosi has the power to determine whether Trump can give the speech in the House chamber.”

— Centrist Democrats are urging Pelosi to end the shutdown. Politico's Rachael Bade and Burgess Everett: “The group, led by Rep. Elaine Luria of Virginia, is asking the California Democrat to offer Trump a vote on his border wall sometime in February if he signs a bill reopening the federal government, according to a draft copy of the letter obtained by POLITICO . . . Trump has already panned a similar idea proposed by Sen. Lindsey Graham (R-S.C.), one of his top allies in the upper chamber. However, the letter, being circulated among some lawmakers from red or swing districts, illustrates the pressure they are under to end the shutdown.”

IRS furlough could delay tax refunds. The Post's Danielle Paquette and co.: "Hundreds of Internal Revenue Service employees have received permission to skip work during the partial government shutdown due to financial hardship, and union leaders said Tuesday that they expected absences to surge as part of a coordinated protest that could hamper the government’s ability to process taxpayer refunds on time. The Trump administration last week ordered at least 30,000 IRS workers back to their offices, where they have been working to process refunds without pay... But IRS employees across the country — some in coordinated protest, others out of financial necessity — won’t be clocking in." 

The shutdown is about to get much worse for federal workers. CNBC's John Schoen: "If the partial government shutdown continues through this week – and there is no end in sight – Friday will mark the second paycheck missed by affected federal workers, whose household budgets have been completely upended. An estimated 800,000 government employees have been caught in the political crossfire of the shutdown, now in its fifth week. Roughly 380,000 federal workers have been furloughed and 420,000 are working without pay.

Beyond that, the government says it will count federal contractors who don’t receive back pay as unemployed.

Weakening housing market isn't helping buyers. AP's Josh Boak: "When home sales weaken, prices typically do, too, and buyers benefit. Not quite this time. Home purchases in many areas of the country have dipped, and price gains have slowed. Yet a rising number of middle-class Americans are finding that home ownership is unaffordable. Why? Mortgage rates are up after years near historic lows. Price increases have been outrunning paychecks. And at a target price that families with a median income could afford, fewer homes are for sale.

"In the past year, the availability of homes that a middle-class family could buy has declined in 86 percent of the largest metro areas, according to an analysis of 49 cities being released Wednesday by the real estate brokerage Redfin and provided in advance to The Associated Press.

No-deal Brexit "a real possibility." BloombergU.K. Trade Secretary Liam Fox is at the World Economic Forum in Davos, where he’s telling everyone he meets that a no-deal Brexit is “a real possibility” and that they should get ready. 'We’re not telling them to "prepare for," we’re telling them to "prepare in case of"' a no-deal Brexit, he told BBC Radio. In the interview, he also warned that the biggest danger facing Britain -- bigger even than a no-deal Brexit -- was not abiding by the result of the 2016 referendum. That would be 'calamitous,' he said."

Though a second referendum is gaining steam. NYT's Max Fisher and Amanda Taub: "A second referendum on Britain leaving the European Union is considered likelier than ever. It’s not just because Jeremy Corbyn, the leader of the Labour Party, has asked for a parliamentary vote on whether to hold one. Even many members of the ruling Conservative Party, possibly including Prime Minister Theresa May, seem to be following through on Brexit more out of a sense of democratic duty than actual conviction.


— It can't be that bad if you're in Davos. The Wall Street Journal's Alex Frangos and Deborah Ball:  “While many corporate bigwigs in Davos put on a brave face and said the economy has overcome the short-term challenges that manifested in a major market selloff at the end of 2018, there was a brooding sense that major risks lie ahead. 'Whether you’re looking at global trade, the government shutdown, the state of the economy and politics,' the uncertainty is unprecedented, said Afsaneh Mashayekhi Beschloss, chief executive of Washington, D.C., investment firm RockCreek, which manages $14 billion in assets.

Speaking at The Wall Street Journal’s CEO Council lunch on Tuesday, she said the current degree of political and policy uncertainty hasn’t been seen since the 1970s, and added a U.S. recession in 2020 is possible.”

— It seems Rep. Alexandria-Ocasio Cortez (D-N.Y.) paranoia has hit the Swiss alps. CNBC's Hugh Son and Brian Schwartz: “The elite financiers attending the World Economic Forum are worried about the 70 percent tax rate on earnings above $10 million proposed by freshman Rep. Alexandria Ocasio-Cortez, D-N.Y. 'It’s scary,' Scott Minerd, global chief investment officer for $265 billion Guggenheim Partners, said in an interview.

'By the time we get to the presidential election, this is going to gain more momentum,' said Minerd, who added that he would probably be personally impacted by it. 'And I think the likelihood that a 70 percent tax rate, or something like that, becomes policy is actually very real.'

She replied:

The gender balance is creeping upward:

— Brazil's Jair Bolsonaro is populism's representative in Davos this year as Trump isn't attending.  From the Times's Mark Landler: Bolsonaro “pitched Brazil to the well-heeled audience gathered in this Alpine ski resort as a good place to do business — a country committed to rooting out rampant corruption and rolling back regulations.

But Mr. Bolsonaro also said Brazil would purge left-wing ideology from its politics and society, and he made no apologies for emphasizing economic growth, something his critics say will come at the cost of protecting Brazil’s environment.”

He had dinner Tuesday night with Apple CEO Tim Cook and Microsoft CEO Satya Nadella: 

Kerry calls on Trump to resign. More from Heather: "When asked Tuesday what he would say to [Trump] if he were seated across from him, former U.S. secretary of state John F. Kerry hemmed and hawed a bit. Then Kerry gave a one-word answer: 'Resign.' ... The audience of mostly elite business, academic and government leaders from around the world initially laughed at Kerry’s comment, and then many clapped and cheered."

The ultimate Davos snap from BuzzFeed tech reporter Ryan Mac: 

Russia’s diplomatic outreach to Japan over a 70-year territorial dispute is aimed partly at securing a more valuable prize for the Kremlin: new political inroads with one of the U.S.’s biggest regional allies.
French auto maker Renault plans to name a successor to its jailed chairman and chief executive, Carlos Ghosn, at a board meeting Thursday, according to people familiar with the matter.
The move will surprise many as the traditional media and tech have feuded over copyright protections.

Trump eyes new Fed candidates. Bloomberg's Jennifer Jacobs and Craig Torres: "White House officials are considering new candidates for at least one and possibly both empty seats on the Federal Reserve Board for [Trump] to nominate, according to people familiar with the matter. Fed economist Nellie Liang withdrew from consideration earlier this month for one of the vacancies. Less clear is whether the White House will renominate Carnegie Mellon University economist Marvin Goodfriend.

"Efforts the White House has made to contact potential new nominees show that, despite Liang’s withdrawal and the delay in a decision on renominating Goodfriend, the administration isn’t putting on hold appointments to the Fed board."


E.U. warns Trump: $23 billion in tariffs loom. Bloomberg's Jonathan Stearns: "The European Union is prepared to hit 20 billion euros ($22.7 billion) of U.S. goods with tariffs should [Trump] follow through on a threat to impose duties on EU cars and auto parts, said a senior trade official for the bloc. The assertion by Jean-Luc Demarty, director general for trade in the European Commission, the EU’s executive arm, highlights the risk of a sudden escalation in trans-Atlantic commercial tensions following a truce struck six months ago...

"Europe is bracing for more possible U.S. curbs on imports while seeking to show progress in enacting a political accord reached at the White House in July to 'work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.' Last week, the commission unveiled a blueprint for a free-trade deal with the U.S. that would cut tariffs on a wide range of industrial goods including cars... A U.S. probe of automotive imports is due to be completed in February.

Japanes Prime Minister Shinzo Abe is also weighing in:



Fed to probe Deutsche Bank. Bloomberg's Jesse Hamilton and Sonali Basak: "The Federal Reserve is examining how Deutsche Bank AG handled billions of dollars in suspicious transactions from Denmark’s leading lender, according to people familiar with the matter, further intensifying what could be one of the biggest money-laundering scandals ever. The Fed’s probe is in an early stage as it scrutinizes whether Deutsche Bank’s U.S. operations adequately monitored funds from an Estonian branch of Danske Bank A/S, according to two people briefed on the situation, who asked not to be named because the inquiry isn’t public. Danske, which used correspondent banks such as Deutsche Bank to move money abroad, has admitted that much of about $230 billion that flowed through the tiny Estonian outpost may have been dirty."

Waters will call Equifax to testify. Politico's Zachary Warmbrodt: "House Financial Services Chairwoman Maxine Waters is planning to have the CEOs of the three major credit reporting firms appear before her committee next month, people familiar with the matter said, one of her first big moves to ramp up oversight of the finance industry. Top executives from Equifax, Experian and TransUnion are expected to appear at a hearing anticipated for Feb. 26, the sources said. The hearing has not been announced and the schedule could change... The hearing will be a preview of the kind of intense scrutiny that Waters has vowed to direct at big banks and top Trump administration officials in the coming months."


From The Post's Tom Toles