The trade war is on thin ice. That’s fine, until someone slips through the cracks. The question is, who’s going to get off the ice first to avoid an icey fall? President Trump? Or Xi Jinping? The one who gets off first throws an unsettling stone not far from the other’s feet.
There’s the Hong Kong crisis. There’s the Xinjiang issue of detention centers for Muslim minorities Beijing believes have terrorist ties. There’s Huawei’s on-again, off-again blacklisting by the Commerce Department. China’s going to buy a bazillion tons of soybeans and pork meat! No, they’re not.
A year into the trade war, and the U.S. has gotten nothing that China hasn’t already promised—namely greater market access to mainland China buyers.
Meanwhile, American money is flowing into China. China money is basically being banned from the U.S. Hong Kong is at risk of sanctions if some people in the Senate get their way. And Bloomberg is actually complaining that Trump is merely settling for peanuts, when they’ve been clamoring for status quo China trade since the first tariffs were issued back in the summer of 2018.
This week started with more good news/bad news on trade. NBC reporter Eunice Yoon tweeted that those “constructive” talks we all heard about on Monday don’t mean much at all.
Where is China getting this idea that the U.S. is going to roll back tariffs? For what exactly? A promise to return to buying soybeans, which is a return to pre-trade-war relations? What are we going through this for, you might ask at that point.
Michael Every, head of financial markets research for Rabobank, wrote in a note published by Zero Hedge today that “China appears set on trying to ‘wait Trump out,’ which was a meme we heard earlier in the trade war, rather than pinning its hopes on a ‘phase one’ deal—of which we have been highly sceptical from the get-go.”
Everyone thinks that the “wait it out” approach means no mini-deal.
So herein lies the rub: If Trump gets wind of the fact that China is ignoring him, or even has the perception Beijing is working against him politically, it raises “the risk of higher tariffs—at least on December 15 —rather than the risk-on imminent decrease so many have said so loudly for oh-so long.”
The market is also ignoring the threat of sanctions on Hong Kong, sanctions that would kill trade talks for months to come.
With 2020 an election year, Trump may work hard to woo China back to the negotiating table to appease the Republican Party’s Wall Street and multinational corporate base, but Xi can bide his time. So far, his strategy of allowing for one step forward, one step back hasn’t forced China to give up anything they weren’t going to give up already.
China and the U.S. are treading on thin ice.
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China is losing manufacturing to Southeast Asia, but no one thinks companies are moving south at an alarming rate. It is unclear if Beijing thinks so anyway, though this week’s surprising rate cut suggests the People’s Bank of China is worried about a further slowdown. The trade war obviously exacerbates that slowdown.
A weaker China is a problem for a number of economies, as rich as Germany and Australia, and as nearly broke as Argentina and a recovering Brazilian economy, too. They are all highly dependent on the Chinese market.
Brazil’s president Jair Bolsonaro, called the Tropical Trump, is supposedly looking into signing a trade deal with China. This is unlikely but shows how countries are not necessarily siding with the U.S. when it comes to turning China into the new global enemy for fair trade.
The trade war is disruptive, and nearly everyone blames Trump for it. But are they willing to just live with Chinese mercantilism, a policy that has upended blue-collar manufacturing labor throughout the West? It appears so.
“China has never exerted greater influence over the direction of the global economy (than today),” says Colin Moore, global chief investment officer of Columbia Threadneedle.
If so, China can afford to lose patience first, meaning if someone throws in the towel first, it will be Xi Jinping. Trump is less likely to give up on his promised phase 1 deal because Wall Street is pricing in a stalemate, and American farmers, who helped turn red counties blue in the November 2018 midterm elections, are looking for help. Sending them subsidies might not be enough.
Like the Godfather says, keep your friends close and your enemies closer, Mr. President.