One moment it seems like détente, the next, all out economic war. Well, the latter seems to be stealing the stage this week, as the US and China are trading barbs over trade. The Trump administration is set to impose a fresh round of tariffs on $200 bn of Chinese goods. The new tariffs come just as the US and China were planning to have a fresh round of negotiations on trade. However, China make be backing away from such talks, as a senior Chinese official recently said “China is not going to negotiate with a gun pointed to its head”.
FINSUM: There is so much back and forth and “noise” in this trade battle with China that it is very hard to get a fix on what is actually happening.
The US and Mexico’s last minute trade deal before a deadline this week left investors wondering what happened to Canada. Trump and the US’ northern neighbor have been in a spat on trade, but the US-Mexico breakthrough has apparently proven a catalyst for renewed talks. Canada’s foreign minister Chrystia Freeland has flown into Washington directly from Europe and will restart talks this morning as part of a last minute effort to reach a deal with the US.
FINSUM: Having Canada in on any new-Nafta deal seems very important, but we don’t doubt that a deal may not materialize given the current environment.
The US and Mexico have reached an important trade agreement after a year of acrimonious bickering over Nafta. The new deal, from which Canada is conspicuously absent, will put harder trade restrictions on Mexico. The deal is a sign that Trump and the US are willing to ease their fight with neighbors as the country ramps up a battle with China. The Trump administration was in a rush to get a deal done before a power change coming in Mexico. The deal will no longer be called Nafta, but the US-Mexico trade agreement.
FINSUM: This is encouraging from our perspective. The last thing we want right now is a multi-fronted trade war. Hopefully a deal with Canada can be reached as well.
We don’t want to say that investors are sleepwalking into it, but in many ways it seems an apt metaphor. Whether stock investors like it or not, the US trade war with China is continuing apace. The two countries’ negotiations on the issue last week went nowhere, and the US is about to hit Beijing with $200bn more in tariffs. Their response will hurt the US economy, as many of them will be on consumer goods, which could raise prices and lower demand. Industrial stocks are likely to be hit by Beijing’s retaliations. 50% of all Chinese imports will soon be subject to new tariffs.
FINSUM: We are starting to wonder if tariffs might lead to “stagflation” in the near term. In consumer demand ebbs at the same time as prices rise for goods, it seems like a perfect recipe for stagnation and inflation.
The US and China ended two days of trade war negotiations yesterday, and apparently there was little progress. Both sides pressed ahead with enforcing $16 bn of further tariffs on one another. The deputy White House Press Secretary commented at the end of the negotiations that the two countries “exchanged views on how to achieve fairness, balance and reciprocity in the economic relationship”, but made no mention of any material progress being made. One senior Trump administration official added “in order to get a positive result out of these engagements, it’s really critical that they address the fundamental concerns that we have raised. We haven’t seen that yet”.
FINSUM: While the market seemed very hopeful about these talks, the trade battle with China looks likely to keep going for a while yet as the issue seems to be quite intractable.