Pessimism in Beijing About Trade Deal
- Conflicting headlines over the weekend
- Trump impeachment causes Chinese strategy
- Tariffs still a major sticking point
Over the weekend, there was a call between US Treasury Secretary Stephen Mnuchin and the Vice Premier of China which was initially described as “very constructive”. However, it has since been released that several government officials in China feel very “pessimistic” about a trade deal going forward.
Sticking points
There are numerous sticking points when it comes to a US-China trade deal, and most of the issues aren’t fixable. However, in the meantime, one of the biggest issues that China has is that they want tariffs rolled back before moving into the so-called “Phase 1” part of the deal.
However, President Trump has no intentions of rolling back tariffs just to get to that point. Because of this, the Chinese have become much more negative lately.
The strategy
China’s strategy going forward will be to simply wait out Donald Trump, as he has a lot of moving pieces in the United States. Ironically, while both the Republicans and the Democrats agree on the China issue, it’s the impeachment conversation that is one of the biggest drags on the idea of getting this situation taken care of.
The Chinese seem very comfortable waiting to see how the impeachment situation turns out, and then they have the election look forward to. In other words, the Chinese are going to be dragging their feet on this deal, because there is no reason for them to do anything else.
That being said, this cannot go on forever as it has certainly caused issues on the Chinese mainland. If that keeps up, the Chinese are going to have a serious problem, as one of the deals between the Chinese Communist Party and its people is that they were going to improve their lives. If they can’t do that, they will lose power. Simply look at Hong Kong for inspiration.
Stock markets continue to rally based on liquidity measures, more than anything else. Central banks around the world continue to loosen monetary policy and even do things such as buy stocks, as in the case of the Swiss National Bank. This indicates that the markets are seeing a “risk-on rally” in the face of signs that are very positive.
As for the Chinese strategy, the impeachment isn’t going to happen. While articles may be drafted in the House of Representatives, by the time they reach the Senate they will be “dead on arrival”. As far as the presidential election is concerned, it still very much favors the re-election of Donald Trump.