The spin-meisters around Donald Trump and Xi Jinping are still speaking different languages about trade. This lost-in-translation dynamic belies claims something big happened in Buenos Aires.

US President Trump’s people claim Chinese President Xi pledged to “reduce and remove” tariffs on goods, including American-made vehicles, at the Group of 20 meeting in Argentina last weekend. Xi’s team insists that America did the bowing, by agreeing to increase market access for China.

Most intriguing, perhaps, is how Team Trump members seem to be on different wavelengths. Listening to Larry Kudlow, Trump’s top economic advisor, you get the impression détente with Beijing is a done deal, whereas US Treasury Secretary Steve Mnuchin gives out the message that the process is just beginning.

Given the uncertainty, it’s best to focus on what may decide whether the ceasefire is real or a mere lull in a broader trade war: the yuan.

By this measure, Trump must be feeling quite good about his dinner with Xi. Monday, the first trading day since Buenos Aires, saw the biggest one-day jump in the yuan since early 2016. That must be music to the ears of a protectionist US leader who has long claimed Beijing’s exchange-rate policies are “killing us.”

Can Trump’s post-Argentina high be sustained? It’s doubtful, given events on the ground in China. Thanks largely to Trump’s tariffs on $250 billion of Chinese goods and threats of more to come, exports, industrial production, purchasing manager’s orders and fixed-asset investment are experiencing downshifts.

Present dangers

Those headwinds pose clear and present dangers to Xi’s stated goal of recalibrating growth engines and curbing bubbles in debt, credit and property.

“China faces a Faustian choice between growth or deleveraging,” Standard & Poor’s argues. “Planned stimulus to boost output and business sentiment in China could undermine the country’s deleveraging push.” That, S&P concluded, “leaves policymakers with a tough choice between missing targets on growth or on reducing financial risks.”

The toughest choice of all, though, may be taking a sliding exchange rate off the table. Here, too, Xi faces a test of his 2013 pledge to let market forces play a “decisive role” in China.

If not for his boss, free-market folks like Kudlow would surely counsel at laissez-faire approach. Traders, after all, have every reason to look at China’s debt-heavy, highly imbalanced and slowing economy and sell yuan. Yet two problems complicate letting markets drive the yuan lower.

One, default risk. A falling yuan makes offshore debt payments harder to make. Nomura warned last month that the amount of dollar-denominated debt that mainland companies have outstanding has more than doubled since 2015. At the end of the third quarter, Nomura estimates, China Inc’s corporate dollar debt hit $751 billion.

No good choices 

The bill is coming due. In the third quarter of last year, roughly $11 billion of dollar IOUs matured. Between now and 2020, an average of $33.3 billion of debt comes due each quarter: that’s a whole lot of cash in the best of times. But China’s offshore debt is “under increasing pressure against the backdrop of weakening domestic demand, rising credit defaults, a depreciating [yuan] and Fed rate hikes.”

Two, Trump’s wrath. Nothing would get Trump to raise the quantity of Chinese goods he’s targeting to $500 billion faster than a falling yuan. Trump doesn’t grasp the mechanics of trade. He believes a deficit means Xi’s government is stealing from American workers. Nor does he understand that currencies generally are a price based on economic fundamentals.

Yet Trump is sure to read a dollar rally against the yuan as Xi breaking their Buenos Aires compact, vague as it is. More actions to tackle China would plunge growth markedly below 6%.

China’s economy grew 6.5% in the third quarter, though many investors doubt the veracity of that figure. A 15% plunge in iron ore prices in the last week on November alone has China’s fingerprints all over it. Official actions in Beijing also suggest growing alarm: tax cuts, fresh business loans, new infrastructure projects.

As headwinds zoom China’s way, most of them from Washington, a yuan weaker than today’s 6.86% level could be just what Team Xi needs. It’s entirely possible the yuan will reverse course and weaken back to seven and beyond.

That, however, would quickly trump any remaining goodwill from Buenos Aires and return markets to a trade war footing.