The markets perked up yesterday when Larry Kudlow, President Trump's economic adviser, announced he was "very comfortable" with a trade deal closing with China on Monday. Which is... interesting timing, to say the least.
Look, I've spent enough time around Wall Street to recognize the subtle art of expectation management. When a deal-maker says they're "very comfortable" about something happening on a specific date, they're either: 1) genuinely on the verge of closing something substantial, or 2) engaging in what we might charitably call "strategic optimism."
The model I find useful here is what I call the "Announcement Proximity Principle." The more specific the timeline mentioned by an official, the more likely we're seeing either imminent success or desperate positioning. There's rarely middle ground.
Let's consider the context. We're in month 16 of a trade war that has whipsawed markets, disrupted supply chains, and cost American consumers billions. The administration has repeatedly signaled imminent breakthroughs, only to have negotiations collapse. Remember May? October? December? Each featured confident predictions followed by disappointing realities.
Kudlow's statement hits differently, though. Specifying Monday creates accountability that previous vague assurances avoided. That's either confidence or a tactical error.
The most plausible interpretation is that we're looking at a "Phase One" deal - the limited agreement covering agricultural purchases, currency practices, and some intellectual property provisions that's been discussed for months. Not the comprehensive restructuring of U.S.-China economic relations that hardliners wanted, but perhaps the best available option given electoral timelines.
Market participants seem split on whether this represents meaningful progress or merely a face-saving pause. The S&P ticked up slightly on the news, suggesting measured optimism rather than euphoria. Bond markets barely reacted at all, which tells you something about how fixed-income traders view the long-term implications.
There's a theory in negotiation dynamics I find applicable: the "closing window incentive." As we approach election season, both sides recognize that the political bandwidth for complex negotiations diminishes rapidly. Trump needs a win to tout on the campaign trail; Xi needs stability as China manages slowing growth and Hong Kong unrest. The mutual incentive for at least a symbolic deal increases daily.
So is Kudlow telegraphing a genuine breakthrough or committing a revealing faux pas? I lean toward the former, but with a substantial caveat: "deal" likely means a narrow, preliminary agreement that addresses the most politically sensitive issues while deferring the thorniest structural questions.
The thing is, markets may be fine with that. After months of uncertainty, even a limited agreement that prevents further escalation represents welcome clarity for businesses making investment decisions. The "uncertainty tax" has been substantial.
Here's a prediction: We'll see an announcement Monday that delivers less than the rhetoric suggests but more than the cynics expect. Agricultural purchases will feature prominently (Iowa caucuses are coming, after all). Currency manipulation language will be included but fuzzy on enforcement. Intellectual property protections will sound impressive in press releases but contain significant implementation gaps.
And the market will probably rally anyway, because at this point, any port in the trade war storm looks pretty good.
I guess we'll know Monday. Or Tuesday. Or whenever the actual signing happens. In this administration, even "very comfortable" timelines have a way of becoming surprisingly elastic.
