The U.S. and China are scheduled to meet later this week.

But chances aren’t good we’ll see any progress – at all.

In fact, Vice Premier Liu He already noted his offer to the U.S. will not include commitments on reforming Chinese industrial policy or subsidies, as reported by Bloomberg.  The problem is those are sizable “must haves” for the White House.

Reportedly, China is attempting to capitalize on President Trump’s recent challenges, which includes a slowing economy and the impeachment issue.

But analysts note such a strategy could backfire significantly on China.

“Beijing is about to make another epic miscalculation," Michael Every, senior Asia-Pacific strategist at Rabobank said, as quoted by Business Insider. "Trump ALWAYS escalates when put under pressure, and has never shown anything so far but a tendency to raise tariffs when disappointed.  If China thinks Trump is going to crumble now just because he faces possible impeachment, they are about to get a very nasty surprise — and hence so are markets.”

A Lack of Resolution Could be Disastrous

The trade war has done a good deal of damage already.

In the U.S., the ISM said manufacturing activity fell to its lowest level in a decade, as the services sector grew at its slowest pace in three years.  While data raises the likelihood of a rate cut, it could be disastrous for markets near-term, and could push us into recession.

According to the National Association of Business Economics (NABE), the risk of recession is rising thanks to the trade war.  “The rise in protectionism, pervasive trade policy uncertainty, and slower global growth are considered key downside risks to U.S. economic activity,” said NABE survey chairman Gregory Daco, chief U.S. economist, Oxford Economics, as quoted by CNBC.

To trade the possibility of downside, we again note investors should hedge for volatility.

Some of the best ways to do that are with the VXX, UVXY, and TVIX.



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