The Takeaway:

Vice President Mike Pence's aggressive speech at the Asia-Pacific Economic Cooperation summit does not change our view of the upcoming Trump-Xi meeting, specifically that the best possible outcome is a temporary pause in new tariffs rather than a grand bargain that reverses all trade actions. We continue to expect that the closest comparison to a Trump-Xi meeting was Trump's deal with European Commission President Jean-Claude Juncker, which included a pause on US auto tariffs. The Trump administration undid this pause by revisiting auto tariff threats against the EU, and we expect a similar pattern will play out with the Chinese: a pause in new tariffs will only be temporary before Trump returns to threatening new tariffs at some point. We believe that Pence's speech was a pointed attempt to demonstrate to the Chinese that the White House, despite recent optimistic rhetoric, will not roll over in negotiations. In short, we view this latest spat as a reflection of the overall tension in the negotiating process as opposed to an indication that the process is dead in the water.