People, people, people. Why does this keep happening?
On Thursday, President Donald Trump announced that he had a trade deal with China, and stocks soared. All was well in the universe of Wall Street. The administration gave itself a pat on the back.
A few hours later, though, everyone figured out that this "phase-one deal" sounded a lot like the trade war detente the US and China came to last December. In this latest "mini-deal," just like the agreement from nine months ago, both parties agreed that China would buy some agricultural goods here and there, and in exchange the US tariffs would not increase for the time being.
(There are more details, we have to assume, but they are difficult to grasp since the agreement wasn't written down or anything this time.)
Of course, this deal leaves untouched the deep structural disagreements between the US and China — issues that include major changes to China's business practices and law enforcement — unresolved. These are the issues at the core of the Trump administration's justification to launch the trade war.
And lo, in the days that followed the announcement of this "phase-one deal," the cracks started to show:
- China began backing away from the idea that would buy $50 billion of agricultural products as Trump said it would.
- China also said that it would like to go through another round of talks before officially agreeing to anything.
- And then China said that Trump would have to remove all tariffs before the trade deal, making "phase two" that much harder to reach.
The S&P 500, to its credit, is flat for the month — phase-one deal or no. But it seems every time the president makes one of these pronouncements, the market gets excited, only to be let down again.
Let me tell you a story about the president. From 1986 to 1988, Trump reportedly made millions by betting in the stock market. His strategy was to leak to Wall Street that he was going to take over a company, like a real corporate raider. Then he'd quietly sell his shares before everyone figured out that he was bluffing.
It all ended because after two years Wall Street figured out that Trump's bark was much worse than his bite.
How long is it going to take this time?
Meanwhile, as Trump pumps his trade deal and Wall Street foolishly gets their hopes up, the rest of US-Chinese diplomatic relations are in meltdown mode.
- The Trump administration sanctioned individuals tied to China's Uighur concentration camps in Xinjiang. An act China has said it will retaliate against.
- The US House approved a bill supporting the rights of protesters in Hong Kong, and the Senate is taking it up as well. China has promised to retaliate over this too.
- The Trump administration is still playing with blacklisting China's telecom darling, Huawei.
So while Trump may say the trade war with China is on the road to resolution, in the rest of the relationship chaos reigns.
And according to Sam Bresnick and Paul Haenle at Foreign Policy, there are some in China who like it that way.
To them, a Donald Trump who is willing to allow democracy to waver in Hong Kong (and the rest of Asia), who is not trusting of his allies, who is easily fooled, is a president who could create the kind of opening that would allow China to gain ground on a swiftly tilting planet. One Chinese thinker called it the "greatest strategic opportunity since the end of the Cold War."
From their piece, which is very much worth reading:
During numerous off-the-record discussions with Chinese government officials and scholars, we are finding that an increasing number are hoping for Trump's reelection next year. At a time when China's political influence and military capabilities are growing, they argue that in spite of his anti-China bluster, Trump has afforded Beijing the space to expand its influence across Asia and, more importantly, comprehensively weakened Washington's global leadership. From a zero-sum standpoint, many Chinese have concluded that Trump's policies are strategically very good for China in the long run.
On top of all these complications is the simple matter of trust. Last month, Beijing hosted a China Development Forum Special Session attended by politicians and technocrats the world over. The message out of that, according to Susan Thornton, a former assistant secretary of state for East Asian and Pacific Affairs, was that the Chinese don't think Trump is acting in good faith.
"They think Trump wants to have the China fight going into November elections," she said during a phone call with Business Insider. "They think he doesn't want to make a deal."
Thornton told us that the US and Chinese sides are having trouble understanding each other. Chinese diplomats tend to be subtle in their dealings; the US president is not a subtle man.
"Trump is presiding over the bleeding of US credibility," Thornton said. "There's no way the Chinese believe in the US … and after seeing Trump's antics on the world stage how anyone is going to do a deal with us ever again?"
If we're stuck in phase one
Now, you may be thinking to yourself: At least the trade war isn't getting worse. If we're stuck in phase one, we're stuck in phase one.
Problem is, phase one is already causing chaos in the global economy. Up until September, the US consumer was the undisputed champion holding things together in a world of negative interest rates, slumping trade and manufacturing data, and declining business investment.
But last month, US retail sales started to sag. And now the Federal Reserve's Beige Book — a quarterly survey of businesses around the US released last week — is replete with complaints about how the trade war is constraining sales and raising input prices.
Then there's what's going on in China, the world's second-largest economy. Last quarter, GDP growth slowed to its lowest rate in three decades, 6%. Trade, manufacturing, industrial production — all declining. The one bright spot is infrastructure investment, which is supported by the government and widely considered a playground for dangerous shadow banking.
The world needs a real US-China trade deal if economic growth is going to return to the planet, not the fake deals the Trump administration keeps serving up. Wall Street — the so-called masters of the universe and the underlings who serve them — should be smart enough to know a real deal when they see one. But no. So far they've bought just about every pump the president has sold them. We hate to see it.