How China and Wall Street won Trump's trade war

President Trump's trade war with China seems to be over before it even began.

Three days of talks produced a vague "framework" under which the U.S. would back off tariff threats in exchange for China buying more American exports. Critics pointed out that much of what the Chinese are agreeing to do were things they would've done anyway, and that the whole thing ended in an inconclusive agreement to continue talking and work toward these goals. Still, "China is winning Trump's trade war," crowed The Washington Post.

It does look like Trump's China hawks are getting rolled. But it's probably good old-fashioned Republican economic orthodoxy, not China, that's doing the rolling.

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When Gary Cohn stepped down as head of the National Economic Council, it was supposed to be a sign that anti-trade and anti-globalization forces would lead the White House. But then long-time conservative commentator Larry Kudlow was tapped to replace him. "Kudlow is an extremely doctrinaire supply-sider, almost to the point of parody," Vox's Dylan Matthews said. "He's also an ardent free trader, a point of sharp contrast with the president, whose protectionist tendencies helped spur Cohn to leave." It looks like Kudlow thinks Trump's protectionist tendencies are malleable. He might be right.

The other major player here is Treasury Secretary Steven Mnuchin, who is serving as the White House's point man in the talks with China. He's a former investment fund manager and investment banker, and cut his teeth at Goldman Sachs. Mnuchin doesn't appear to be as much of an ideologue as Kudlow, but his preferences clearly lean in the same direction. He'd prefer to de-escalate the trade fight with China.

Remember that for the bulk of big American businesses, the current trade setup with China is fine. It improves profit margins by suppressing labor costs here in the U.S., and lets American wealth owners shop for new investments and even cheaper labor in China. The country's myriad limits on foreign capital, its hardball practices on intellectual property, and its own protectionism and tariffs certainly complicate the picture. But these practices tend to anger specific sectors and industries rather than American business writ large.

Furthermore, all big business in the U.S. is knit together by the financial sector. Wall Street benefits enormously from the high profits and free capital flow of the current global trade regime, and has the biggest megaphone in Washington, D.C. Mnuchin comes right out of the finance world. And while Kudlow is more of a talking head, he takes the same sweeping, pro-big-business-in-the-aggregate approach.

Because center-right and center-left economists have mostly all signed onto the global trade agenda, the only serious China hawks the White House has been able to find in the economics world are oddballs like Peter Navarro. And these voices tend to have less credibility and clout in elite policymaking circles than "big picture" types like Mnuchin and Kudlow.

That brings us to Trump himself.

Trump is an excellent salesman and demagogue: He quickly figured out that anti-global trade and anti-China rhetoric will play well with a large swath of middle-class voters. And he happily built his campaign around such talk. But he almost certainly doesn't care about this actual issue at all. The president's lack of policy acumen is legendary, as is his tendency to take his positions from the last person he talked to.

The president is also clearly a glory hound, and enjoys surrounding himself with powerful or well-known people as much as he enjoys culturally outraging the metropolitan elite. Thus, Trump is happy to appoint people like Kudlow to major positions within the administration, even if they may disagree with the policy implications of his campaign sales pitches.

The result is an administration that doesn't really know what it wants, or have any sort of overarching framework for deciding what it wants.

Now that administration has run headlong into the Chinese, who do seem to know what they want, and have the policy chops to back it up. America's China doves just want to get back to business-as-usual, so they're happy to do a deal that's friendly to the Chinese and call it a day. They also came into the administration with far more political clout than the China hawks. And Trump himself has zero capacity to referee disagreements between the two camps. Wins tend to default to the doves as a result.

A nervous stock market surged on Monday on news that the White House was putting the trade war "on hold." That alone should give you an idea of how the bulk of wealth owners and financial movers and shakers feel about the issue. The people like Navarro, who really do want to aggressively challenge China, just don't have the same juice in the administration.

Mnuchin and Kudlow and their compatriots probably realize Trump's anti-China rhetoric was mostly a sales job. But it was what it took to win power. Now they're just looking for a way out of that implied trade confrontation with as little drama as possible. So far, it looks like they'll get their way.