Markets may be pricing in trade war resolution.
But that euphoria may not last. It all depends on who blinks first.
At the moment, there are no written agreements between the U.S. and China. At the moment, the U.S. has delayed 30% tariffs on $250 billion worth of Chinese goods. China agreed it would address intellectual property and financial issues with the U.S., and buy U.S. agricultural goods.
While that sounds great in the headlines, it’s not sounding so good to fearful investors.
Without a signed agreement, China now wants more. In fact, they now want another round of meetings with the U.S. before any agreement was written, or signed. Plus, they wanted to ensure that December 2019 tariffs are removed, as well.
“The Chinese don’t want Xi to move forward with this initial phase or this initial detente if they don’t get rid of the December tariff threat as well,” said Stephen Myrow, managing partner at Beacon Policy Advisors, as quoted by The Hill.
If China Walks, Markets Drop
Should the U.S. decide it will not take the December tariffs off the table, China could walk away, intensifying an already difficult situation. For example, Treasury Secretary Steven Mnuchin said he expects for December tariffs to increase if there is no deal with China.
Investors also fear China could just wait for the 2020 election.
But even that could easily backfire on them.
“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.”
Stay tuned for more on this developing story.
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