12 Aug WILL RESOLUTION TO TRADE NOT OCCUR UNTIL 2020?
There is a growing number of analysts who are suggesting the trade war will not end until 2020 because there is no incentive for either the US or Chinese to come an agreement until then.
For China they will not likely agree to the enforcement mechanisms the US is requesting. Pressure for an agreement will rise if the Chinese economy slides further and resulting in domestic unrest similar to what is occurring in Hong Kong.
For the US, President Trump has no incentive to an agreement for two important reasons. First he is using China as an outside enemy to rally his supporters. He can also control the news flow.
Second he can place and retract tariffs any time he wants. As widely noted today Trump is in a phase of unhappiness and has place new tariffs to go into effect on September 1. However he can also remove the tariffs if he thinks talks are going well.
In my view, either way he has a political advantage. He can act tough if needed and declare victory even if the victory is Pyrrhic in nature.
All must remember in the 2016 election voters overwhelmingly agreed that trade did not benefit the American worker or economy. This sentiment has not changed.
The global supply chains—specifically in the technology sector—supply chains that were built during the last 15-20 years—are being threatened. Moreover tariffs by definition are inflationary for hypothetically increases the costs of production.
Many companies are already considering moving their production facilities outside of China and in some regards such as relocation has already commenced.
To write the incredible obvious the Democratic Party is hoping the economy slips into a recession for as such will increase the odds of one its 24 candidates winning the White House. I must write many candidates share similar views as the President…China and trade does not benefit the everyday American worker.
The major question at hand is how much will the global economies slow? Many of today’s forecasts are similar to those made during the 1990 implosion of Japan. The American and global economies did ok.
Is it different this time given the multi polarity and interdependency? I do not know how to answer this question.
Perhaps the appropriate response the ultimate economic outcome is the one that no one has yet discussed. Four years ago I was not aware of anyone writing or suggesting that 25% of global investment grade debt in the Barclays Index would have a negative yield. This was thought to be impossible.
How will this week’s economic calendar influence perceptions? The economic calendar is comprised of several inflation indicators, sentiment surveys, retail sales, housing statistics and manufacturing data points. How will such influence outlooks.
Last night the foreign markets were down. London was down 0.43%, Paris down 0.40% and Frankfurt down 0.16%. China was up 1.45%, Japan up 0.44% and Hang Sang down 0.44%.
The Dow should open moderately lower as the protests in Hong Kong are beginning to weigh upon the markets. The 10-year is up 17/32 to yield 1.68%.