The Increasing Risk of A Major China Trade Debacle

In case you missed our Week In Review, let us reiterate our concern about a potential major debacle in the U.S.-China trade negotiations.

It appears President Trump and his negotiating team have, once again, painted themselves into a corner with no exit unless to make major concessions.  Just as the White House is boxed itself in with a government shutdown disaster.   Bad negotiating tactics and strategy.

China Now Has The Upper Hand

The Chinese negotiating team carries a reputation as “professional, productive and ruthless and has been described by a group of their international counterparts as “among the best in the world.”   They have clearly outmaneuvered the American team, in our opinion.  We’re not rooting for this, we are rooting for good governance and a positive outcome for the global economy, ergo the country.

Potemkin Deal At Best

The China trade deal, which should be a sell the news event, will most likely be another Potemkin Village, just as we expected.

WASHINGTON — As a critical round of talks with China kicks off next week, the Trump administration is increasingly pessimistic that Beijing will make the kind of deep structural changes to its economy that the United States wants as part of a comprehensive trade agreement, according to officials involved with the talks.

The United States is now weighing whether large Chinese purchases of American goods and more modest economic changes will be enough for a deal to end a damaging trade war between the two nations and help calm volatile markets. 

A Chinese delegation led by Liu He, China’s vice premier, will meet with Robert Lighthizer, the Trump administration’s top trade negotiator, and Steven Mnuchin, the Treasury secretary, on Jan. 30 and 31. The two countries are racing to strike an agreement by March 2, a deadline set by President Trump and President Xi Jinping of China.  – NY Times, Jan 21th

Mnuchin and Malpass are in way over their heads and outmatched by these guys.

And this nonsense is really starting to get old,

 

Pleeeeaaazzzzze!

It is definitely not helping in overnight trading as S&P futures are down 18 handles.

Moreover,  Xi and China play the long game and are  not obsessed with every tick in the S&P  Shanghai and he oversees a command economy not subject to market discipline.  The Chinese negotiators know it.

The indicator to watch is China’s international reserves, which are not observable in real time,  but will be reflected indirectly in the currency.  If CNY moves back above 6.90, to say, 6.95, advantage Trump.

rmb

 

But Mr. Trump is also under pressure and the window for him to use market-rattling tariffs as leverage is likely to shrink as his re-election campaign heats up next year.

“The damage to U.S. business, consumers and exporters is real and ongoing,” Scott Lincicome, a trade lawyer and scholar at the Cato Institute, said, noting that the risks of this approach only increased if negotiations with China dragged into 2020. “If you’re the Chinese, delay is your best friend.”  – NY Times, Jan 21st

 

How do say ” delay, delay, and delay, and they will fold faster than a lawn chair” in Chinese?
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Expectations Too High
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Expectations are way too high for a “good” China deal.
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In our opinion, at best, there will be a “fake deal” as in Potemkin.
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You know,  something like China agrees to raise the ceiling on American imports to $600 billion per year from the current level of around $130 billion.
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Completely meaningless and nonbinding nonsense, such as the so-called Korean concessions in the Korea-U.S. free-trade deal,
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South Korea, meanwhile, negotiated a permanent steel-tariff exemption in exchange for allowing additional U.S. auto imports. But the claim of a “renegotiated” Korea-U.S. free-trade agreement should be viewed with skepticism. U.S. automakers already don’t export the allowable number of cars into South Korea today, let alone the expanded number. And South Korean car exports, the main sources of the trade imbalance, were left alone. It was a limited, face-saving deal that everyone can tout as “preventing” a trade war.  – New Republic
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potemkindeal
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Look to the government shutdown as your template as to how Trump & Co. have painted themselves into a corner with potential disasterous consequences.
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We know the president has trouble with the public perception that he has “caved,” which now raises the risk of a complete debacle and sharp market sell-off.
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“Mad King” Premium
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It’s time to increase “the Mad King” premium, folks.
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Starting to feel the bell is ready to ding and those overhead lights are about to come on.
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As always, we reserve the right to be totally wrong.
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Seat Belts_Mar24
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This entry was posted in China, Uncategorized and tagged . Bookmark the permalink.

2 Responses to The Increasing Risk of A Major China Trade Debacle

  1. RJones says:

    Economists are in agreement, “Economic growth won’t go above 2% under Trump”…

    • Steve Larson says:

      what planet are you on , GDP Growth under Trump has doubled average of Obama, over 3% 2nd , 3rd qtr 2018 and best of at 3% 4th qtr , just wondering , not that I believe growth is not slowing but …

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