Once again, it appears Robert Lighthizer and the Trump Administration's trade hawk faction have won over the more moderate advisors. Only a week ago, reports surfaced claiming the US might exempt China from Iran sanctions, for fear that the US would have no choice but to crack down otherwise (since Beijing has made clear exactly how it feels about Washington dictating which countries it can trade with).

Now, that idea, which was being pushed by senior State Department officials, has been abandoned, according to a Politico report. Instead, senior administration officials believe there's no avoiding the fact that Beijing has repeatedly violated the ban on importing Iranian crude.

Because of this, a group of China hawks on the National Security Council are now pushing for the US to slap secondary sanctions on Chinese businesses. Aggressive tactics like this would almost certainly sink the recently revived and still extremely delicate 'trade truce' brokered between Trump and Xi in Osaka.

You might remember the exact violation in question. In June, a tanker carrying up to a million barrels of Iranian oil docked near the Chinese port city of Qingdao. Republican lawmakers complained, demanding that the Trump Administration pressure Beijing to stop these purchases. China later welcomed a second batch of Iranian oil since the waiver expired in May.

The problem is Beijing's defiance is undermining the administration's efforts to drive Iranian exports to zero, the explicit goal of National Security Advisor John Bolton and the other Iran hawks.

So here we are, with the Iran hawks and the trade hawks likely both in agreement, and President Trump likely resisting to avoid pissing off Xi and ending the talks. After all, Beijing is still waiting for concrete action from the US on Huawei.

The internal debate also comes at a precarious moment for Iran. The Islamic Republic was just accused of trying to seize a UK oil tanker in retribution for the seizure of two tankers carrying Iranian crude. And the Islamic Republic's threats to enrich its growing uranium stockpile beyond the 20% threshold, taking it closer to weapons grade (though still far from the 90%+ needed to build a bomb), certainly aren't helping.

US officials slammed Iran for "nuclear extortion" at a meeting of the IAEA on Wednesday. And later, Trump tweeted that "sanctions will soon be increased substantially."

As far as the relationship with China goes, contact was made via phone between negotiating teams earlier this week, but the date of an in person meeting remains unclear, and some in the president's orbit are already predicting that negotiations will drag on until next year at least.

That is, unless Trump does decide to try and punish Beijing over its Iranian crude imports.

But hey - at this point, trashing the trade deal might be the only way to ensure the Fed delivers a 50 bp rate cute this month. At this point, anybody who has been watching markets over the past few days probably understands that a rate cut has superseded the trade war as the only thing markets care about.