The Trump administration raised doubts Tuesday about the substance of a U.S.-China trade cease-fire, contributing to a broad stock market plunge and intensifying fears of a global economic slowdown.
Investors had initially welcomed the truce that the administration said was reached over the weekend in Buenos Aires between Presidents Donald Trump and Xi Jingping — and sent stocks up Monday. But on Tuesday, after a series of confusing and conflicting words from Trump and some senior officials, stocks tumbled, with the Dow Jones shedding about 800 points, or 3.1%.
White House aides have struggled to explain the details of what the two countries actually agreed on. And China has not confirmed that it made most of the concessions that the Trump administration has claimed.
"The sense is that there's less and less agreement between the two sides about what actually took place," said Willie Delwiche, an investment strategist at Baird. "There was a rally in the expectation that something had happened. The problem is that something turned out to be nothing."
Other concerns contributed to the stock sell-off, including falling long-term bond yields. Those lower rates suggested that investors expect the U.S. economy to slow, along with global growth, and possibly fall into recession in the coming year or two.
John Williams, president of the Federal Reserve Bank of New York, also unnerved investors by telling reporters Tuesday that he supports further Fed rate hikes. His remarks renewed fears that the Fed may miscalculate and raise rates so high or so fast as to depress growth.
The disarray surrounding the China deal coincides with a global economy that faces other challenges: Britain is struggling to negotiate its exit from the European Union. Italy's government is seeking to spend and borrow more, which could elevate interest rates and stifle growth.
And in the United States, home sales have fallen sharply in the past year as mortgage rates have jumped.
Trump and White House aides have promoted the apparent U.S.-China agreement in Buenos Aires as an historic breakthrough that would ease trade tensions and potentially reduce tariffs. They announced that China had agreed to buy many more American products and to negotiate over the administration's assertions that Beijing steals American technology. But by Tuesday morning, Trump was renewing his tariff threats in a series of tweets.
"President Xi and I want this deal to happen, and it probably will," Trump tweeted. "But if not remember, I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so."
Trump added that a 90-day timetable for negotiators to reach a deeper agreement had begun and that his aides would see "whether or not a REAL deal with China is actually possible."
The president's words had the effect of making the weekend agreement, already a vague and uncertain one, seem even less likely to produce a long-lasting trade accord.
"We expect the relationship between the world's two largest economies to remain contentious," Moody's Investors Service said in a report. "Narrow agreements and modest concessions in their ongoing trade dispute will not bridge the wide gulf in their respective economic, political and strategic interests."
Among the conflicting assertions that White House officials made was over whether China had actually agreed to drop its 40% tariffs on U.S. autos.
In addition, Treasury Secretary Steven Mnuchin said Tuesday on the Fox Business Network that China agreed to buy $1.2 trillion of U.S. products. But Mnuchin added, "if that's real" — thereby raising some doubt — it would close the U.S. trade deficit with China, and "we have to have a negotiated agreement and have this on paper."
Many economists have expressed skepticism that very much could be achieved to bridge the vast disagreements between the two countries in just 90 days.
"The actual amount of concrete progress made at this meeting appears to have been quite limited," Alec Phillips and other economists at Goldman Sachs wrote in a research note.
During the talks in Buenos Aires, Trump agreed to delay a scheduled escalation in U.S. tariffs on many Chinese goods, from 10% to 25%, that had been set to take effect Jan. 1. Instead, the two sides are to negotiate over U.S. complaints about China's trade practices, notably that it has used predatory tactics to try to achieve supremacy in technology. These practices, according to the administration and outside analysts, include stealing intellectual property and forcing companies to turn over technology to gain access to China's market.
In return for the postponement in the higher U.S. tariffs, the White House said China had agreed to step up its purchases of U.S. farm, energy and industrial goods. Most economists noted that the two countries remain far apart on the sharpest areas of disagreement, which include Beijing's subsidies for strategic Chinese industries, in addition to forced technology transfers and intellectual property theft.
Kudlow acknowledged those challenges in remarks Tuesday morning.
"China's discussed these things with the U.S. many times down through the years and the results have not been very good," he said. "So this time around as I said, I'm hopeful, we're covering more ground than ever... So we'll see."
Complicating the challenge, Trump's complaints strike at the heart of the Communist Party's state-led economic model and its plans to elevate China to political and cultural leadership by creating global champions in robotics and other fields.
"It's impossible for China to cancel its industry policies or major industry and technology development plans," said economist Cui Fan of the University of International Business and Economics in Beijing.
Trump had tweeted Sunday that China agreed to "reduce and remove" its 40% tariff on cars imported from the U.S. Treasury Secretary Steven Mnuchin said Monday that there was a "specific agreement" on the auto tariffs.
Yet Kudlow said later that there was no "specific agreement" regarding auto trade, though he added, "We expect those tariffs to go to zero."