In light of recent events, economists, analysts and a parade of pundits have bent over backwards to try and determine who has the better bargaining position in the increasingly tense standoff between the U.S. and China on trade.
To be sure, there are any number of ways to go about deciding who’s holding the stronger hand and if you ask Wilbur Ross, Peter Navarro and of course Donald Trump, the answer is the same: America, of course.
“If it really does get to be a big war, we have many more bullets than any of these other countries,” Ross told Bloomberg last week.
But China begs to differ.
In a characteristically amusing piece out Monday from Xinhua, state media in China alluded to Xi’s “powerful weapons” when it comes to fighting a trade war of attrition with the U.S.
According to Xinhua, those weapons include a giant market, a resilient economy and, amusingly, “strong leadership”, which Xinhua seems to be suggesting the U.S. might lack.
The state-run outlet also flagged Fed tightening as a risk to America’s position to the extent Jerome Powell’s efforts to stay ahead of the (Phillips) curve end up tightening financial conditions and thereby exacerbating any hit to growth from trade tensions.
Those of you who find elegance in simplicity might be inclined to take a more straightforward approach to things by noting that while the S&P continues to hang in there, the Shanghai Composite has plunged into a bear market. If Monday’s action was any indication, the pain isn’t likely to subside soon for mainland equities.
Well, speaking of “pain” and the SHCOMP, Deutsche Bank’s Alan Ruskin wrote the following on Monday in a short note:
[The] US/China equity ratio ‘pain trade’ – the Shanghai comp/SPX has broken the 2014 low. As long as this ratio is heading down, it will encourage views that China is under more duress than the US to compromise on trade issues.
Here’s the chart on that:
It’s a simplistic view, to be sure, and Wilbur Ross was out on Monday downplaying the importance of the stock market when it comes to crafting trade policy.
But make no mistake, the administration’s decision to back down last week on the methods for restricting Chinese in investment in U.S. industries pretty clearly suggested that no one at 1600 Penn. is in the mood to see the trend in that ratio reverse.
At least not to the extent that reversal comes courtesy of a declining S&P.
Wellllllllll…lol.
If we were discussing pure economics/markets, the “US is winning” would be correct.
However…China doesn’t have to satisfy its own investors, they hold a massive amount of US Treasuries they could sell to get the attention of the “safe haven” investors, and they could devalue their currency.
(No one sez they have to be rational.)
I think the US administration will fold at the first sign of significant weakness in the US equity market. We’ve become a nation thoroughly and arrogantly obsessed with paper gains and equity appreciation, at all costs. I mean at all costs. And I use that term arrogance in every sense of the word. Greed begets more greed. Policy compromise with this administration is always due to the relentless drive for self wealth preservation. And why wouldn’t this be the case? Trump has politically surrounded himself with very very wealthy people.
We all know this is more Trumpinian political posturing. There is no MAGA.
It’s going to be just enough Trumpinian posturing to do what he needs to do before the midterms. Satisfy his pre-election commitment. Once he puts the checkbox against trade, the ideologies will be thrown out to the curb, once again. There is no MAGA.
If the motivation behind this circus is too cynical for most, I ask the administration to prove us wrong. Make a commitment to what you are doing and stick to it. There’s absolutely no integrity in this US administration. There is no MAGA.
The NASDAQ is the red light for policy makers. That’s when their wallets get really get hit.
A politicians’ wealth preservation instincts will always outweigh, supersede and dominate their instincts for doing what’s right for this country.
There is no MAGA.
Very good comment, formerly. Exactly my thoughts. If or when (i’m thinking when) the naz falters the shit will hit. What we be precious is the clawing back, with the usual stilt, on how WE won. MAGA my ass.