Some influential voices on Wall Street are saying Trump blinked in the latest exchange with China in the ongoing Trade War and showed just how much pain the U.S. could tolerate. “Tell me why Xi should not continue to wait out The World’s Greatest Negotiator, who keeps dealing with himself?” says Jim Chanos, founder and Managing Partner of Kynikos Associates. Markets rallied on the announcement by the U.S. Trade Representative office that certain items were being removed from the new China tariff list and others would be delayed until mid-December.
Here is an interesting Twitter discussion giving various views on this Trumpian move. The opinions run the gamut from, Trump is a fool and China’s President Xi has got Trump on the run, to Trump is playing 3d-chess and in some odd way trying to force Fed action to lower rates.
Mnuchin swerves first https://t.co/77lByXmdDo
— Downtown Josh Brown (@ReformedBroker) August 13, 2019
News Forecasters discussed the timing of the China Trade War already two weeks ago. We said, the Trade War is not likely to end soon, and China will likely wait and see the outcome of the 2020 U.S. presidential elections, in hope of a better deal from a Democratic president. This part is still true. But we also said Trump would not likely capitulate to the Chinese. This may in fact be changing.
Though the stock market is holding, bond rates are collapsing to generational lows, indicating panic is starting to settle into the economic outlook (this forecast from News Forecasters is largely still true). China is targeting the Trump political base in the agricultural countryside. U.S. farmers suffer a “body blow” as China slams the door on farm purchases. Trump has asked Japan to buy “huge amounts” of U.S. farm goods. Even the Democrats are targeting farmers, especially in Iowa (first primary votes). Democrat presidential candidate Buttigieg unveils an $80 billion plan to bring internet to all rural Americans.
On the other side of this battle China, the U.S. is remaining quiet publicly about the situation in Hong Kong, though in private jumping for joy – maybe even exacerbating under the covers. Hong Kong is facing a major political crisis as it heads into a 10th week of mass demonstrations. What started as a movement against a controversial law has expanded into something much bigger. Protestors are now demanding greater democracy and an inquiry into alleged police brutality during past demonstrations.
News Forecasters believes, Trump is blinking and is feeling the heat from his political base. As well, the economy is starting to wobble and Trump knows all too well that in presidential politics, as past President Bill Clinton said, “It’s the economy, stupid.”
So it looks like Trump and Xi want to put the Trade War on pause, pending the outcome of the 2020 U.S. presidential elections. Afterward, and if Trump is elected, the Trade War will heat up even hotter. In the meantime status quo, and both sides in the war will take little jabs at each other. However, if in fact the global economy is headed for something darker, we will have to go to Plan B. Neither Trump nor Xi are winners in this case.