Why there will be no trade deal with China

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If you read the headlines, you may seem confused. On Sunday, all the major news networks were reporting that the US and China had come to a trade deal. Trump said that this deal will open China’s market and allow American companies to compete in the country. He said that this could be the biggest economic growth opportunity in a generation.

Speculators were beside themselves as people were guessing that the stock market could open 5% or even 10% higher. By 0930 am on Monday 03rd Nov, the Dow Futures contract was up more than 400 points. The futures held on to its gains right up to the opening bell.

And then the somehow, something happened.

Firstly, The Rembau Times was quite prescient when we called this as “Trump own the trade war against China.” In our article we highlighted one key part of the so called deal between the Trump and Xi Jinping.

China gets 0. Nothing.

The only concession, if you could call it that was that Trump was not going to raise his promised tariffs on Chinese tech exports to the US to 25%. It will stay at a heavily discounted fee of 10%. Another aspect which should not be lost was the way the body language of all those present at the discussion.

Trump force projection. Trump trade team has got this worked out so well.
Credits: Bangornews.

The American delegation was projecting so much power that it made President Xi Jinping looked a bit like a surrender scene than a negotiation. Usually in negotiations with China, you deal with a lot of functionaries until you finally sat down to do a deal with the boss. Trump completely reversed this tactic by showing China who was the real powers that be.

The Rembau Times smelt a rat.

Trump declared himself as Tarriff Man on Wednesday and a new DC Comic star was born.

We said the following “any deeper reading will lead one to understand that basically nothing was agreed which will make things appear as a resolution. This was a “stall for time” tactic by China, but if China does not accede, it seems the next course of action is to escalate the trade war by what could be a nuclear option.

Is this a mark of a rally? Well, since uncertainty persists, it makes it a sustained rally difficult. If the markets do sell off, it could be quite brutal” – Trump Won The Trade War, Rembau Times 03 Dec 2018

And today we smelt another rat when US Trade policy adviser, Peter Navarro, an avowed anti-China economist said that he was “bullish on a trade deal with China.”

Peter Navarro told FNC’s Bret Baier Tuesday that a trade agreement with China will be great for the long-term health of the U.S. economy and urges critics and the markets to give negotiations a chance.

This is what he said

“We had the president of China sitting head to head with the president of the great United States with a very strong personal bond, 45 minutes of the Chinese president in great detail promising to address the concerns of the American people. And we have 90 days to see progress on that. I think it is premature for people to lose faith in that process.”

Which basically meant exactly what The Rembau Times has been saying. This was a shakedown of China. And the way the American negotiators are going to go about it will be as if they were implementing a terms of surrender of a country.

Do this. Do that. Do this. Do that. No concession. Just surrender.

No country will agree to that form of negotiation. This is nothing to do with Trump negotiating a better deal for US but right now for him to do show to the American people that he is a tough president, and ultimately secure his second term re-election.

The financial markets finally got whiff of what actually is going to take place and promptly sold down. From rallying +400 points on Monday, markets sold off by 600 points on Tuesday. On Thursday, it was worse as markets sold off by over 700 points at one point due to the arrest of Huawei’s CFO in Canada,  on orders by the United States. The markets recovered yesterday but this issue is far from resolved.

It will be interesting to see how financial markets react going forward. The US economy is about $19 trillion and many argue that this entire trade dispute is much bigger than what it seems. However, prima facie, it seems that the markets don’t  give much hope that a deal will be struck.  There is still an outside chance that if US cuts off Chinese exports that this could result in a much bigger crisis 12 months down the road.

*Credits to CNBC for healine pic

 

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