Markets look poised to celebrate trade “optimism” again this week.
At this point, “trade optimism” is just a catch-all that’s rolled out to explain why futures are up if there’s no readily discernible catalyst. Wilbur Ross opened his mouth on Sunday and noises came out, but it’s hard to imagine anyone is trading off those soundbites. Or maybe they are, who knows.
Although the December 15 tariff escalation remains on the calendar, it’s becoming more clear that the Trump administration will need to either remove it as a concession to get the “Phase One” deal with China signed or risk disappointing markets. That’s how these things go. In the immediate aftermath of the meeting between Trump and Vice Premier Liu He at the White House last month, US equities pared gains into the close when no decision was made with regard to that December 15 escalation. Since then, one gets the distinct feeling that the rally in equities is at least in part contingent on that being taken off the table, and Trump officials seem to know it – they trial-balloon different versions of the same talking points about those prospective levies on an almost daily basis. “Feel the market!”, as Trump would say.
For their part, Goldman has now removed the planned December tariffs from their base case.
“At this point, further tariff increases look less likely… and we are removing implementation of the proposed tariffs on List 4B from our forecast”, the bank said Sunday evening. “Instead, we now assume that the tariffs on imports from China that are currently in place will remain in place but that the White House will not implement any further tariffs”.
In other words, Goldman thinks we’ve hit “peak China tariffs”. (The title of the note is: “Tariffs have peaked”.)
“When the White House first announced the ‘Phase 1’ agreement on October 11… comments from officials made clear that the December 15 tariff increase was not being addressed as part of ‘Phase 1′”, the bank writes. “However, since then, comments from Administration officials have implied that finalizing ‘Phase 1’ might be grounds for cancelling the December 15 tariff increase as well”.
It seems highly unlikely that the administration wants to jeopardize these gains:
Premier Li Keqiang chatted with Wilbur Ross and US National Security Robert O’Brien at Asean on Monday.
“The healthy development of China-US relations requires the two sides to meet each other halfway”, Li said, in a statement pushed out by the Foreign Ministry.
He added that China and the US should “promote relations based on coordination, cooperation and stability, in accordance with the consensus reached by the two heads of state”.
That’s pretty amusing, considering how difficult it is to determine whether “consensus” has actually been reached with Trump. There have been two months in 2019 when the S&P posted a monthly loss. In both months, Trump broke the “consensus” reached with Xi.
And yet, Beijing is holding out hope. “The two sides should respect each other’s core interests and major concerns, manage differences on the basis of equality and mutual respect, and expand cooperation on that basis”, Li went on to say after meeting Ross.
Good luck with that. Americans learned a long time ago that expecting Trump to “manage differences on the basis of equality and mutual respect” is a pipe dream.