Tuesday, August 13, 2019

Trump may have just blinked in China trade war

  • Some influential voices on Wall Street are saying Trump blinked in the latest exchange with China and showed just how much pain the U.S. could tolerate. China may use that to its advantage.
  • “Tell me why Xi should not continue to wait out The World’s Greatest Negotiator, who keeps ‘dealing’ with himself?” says Jim Chanos, founder and managing Partner of Kynikos Associates.
  • Markets rallied on the announcement by the U.S. Trade Representative office that certain items were being removed from the new China tariff list and others would be delayed until mid-December.

Trump's decision to stand up to China's abusive trade practices is one of a handful of subjects where I have supported him. But there have always been three serious weaknesses. First, although both the US and China have significant national debts, China's is less than half that of the US as a percentage of GDP. Secondly Xi does not have to face reelection by the people of the People's Republic. Trump does have to face reelection and if the economy tanks it would seriously damage his prospects. And lastly there is Trump's temperament which is mercurial on a good day.

Xi understands all of this and has no reason to rush into a deal that would be disadvantageous to China when he can afford to sit back and wait to see if November 2020 brings some improvement in the political landscape.

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