Donald Trump’s penchant for breaking his word along with the US president’s ongoing trials and tribulations inside the Beltway have compelled China to reconsider the relative merits of signing up for the “Phase One” trade agreement.
That’s the gist of a CNBC report that dented market sentiment on Monday, as US equities gun for their seventh consecutive weekly gain.
“[The] mood in Beijing about [the] trade deal is pessimistic, government source tells me”, Eunice Yoon said, in a tweet. “China [is] troubled after Trump said no tariff rollbacks”, she added, noting that Beijing believed there was an agreement in principle on mutual tariff relief.
And see, this is always the problem – there was an agreement in principle. Multiple US sources confirmed as much on November 7 after Chinese Commerce ministry spokesman Gao Feng said both sides had agreed to lift tariffs in phases as a deal between the world’s two largest economies progresses.
Predictably, some hardliners within the US administration balked at the tariff relief, which apparently compelled Trump to adopt a skeptical tone. That then morphed into outright bombast, as Trump whipped himself into a frenzy, something he’s prone to doing (we are, after all, talking about a man who watches clips of his own rallies for pointers).
Trump threw cold water on the rollbacks story starting on November 8 (i.e., just 24 hours after US officials confirmed China’s contention that a deal in principle had been reached to include mutual relief from the levies as part of an interim deal) and continued to cast doubt on the situation in subsequent public remarks.
“There was a lot of incorrect reporting, but you will see what I’m going to be doing”, the president said two Saturdays ago. “They’re moving along much too slowly for me”, he said of the trade negotiations.
Sure, it’s probably just a combination of brinksmanship and showmanship, but it’s a potentially ruinous gamble at a time when China is sick of both. With the Fed seemingly determined to stay on hold at next month’s meeting, and with the memory of last Christmas’s selloff still fresh in market participants’ minds, risking the trade talks falling apart should be a nonstarter for the White House.
That goes double and triple given what’s going on on Capitol Hill.
Sure enough, CNBC also said Monday that the “strategy” in Beijing is “now to talk but wait due to impeachment [and the] US election”. “[Chinese] officials are wondering if it is more rational to wait things out since it is unclear what Trump’s standing will be even in a few months”, CNBC said.
In the meantime, China will “prioritize economic support”.
Since Trump began casting doubt on the tariff relief, the PBoC has cut the MLF rate, injected a surprise 200 billion in liquidity and cut the 7-day repo rate for the first time since 2015. You can bet the loan prime rate will be cut this week too.
Over the weekend, China said Liu He, Steve Mnuchin and Bob Lighthizer had another “constructive” phone call.
One wonders whether the first question from Liu wasn’t: “So, just shoot straight with me here guys, is he gonna be forced to resign or isn’t he?”