And now, for your daily dose of trade pessimism.
The US and China may not be able to get across the finish line with a “Phase One” trade deal this year, sources said Wednesday. Risk assets slumped as soon as the headlines crossed.
The news – from Reuters, citing “experts” and people close to the White House – comes amid intense wrangling around the scope of potential tariff rollbacks, which have been the subject of conflicting reports over the past two weeks.
Donald Trump has not yet indicated whether the White House is prepared to go along with tariff relief for Beijing, despite the Chinese side believing a deal in principle had been reached for proportional rollbacks.
It was never clear precisely what would be included in the interim agreement (the first of several planned installments on the way to a comprehensive deal), and even ostensibly “easy” issues like farm purchases have emerged as potential stumbling blocks this month.
Nobody expects the “thorny” issues (e.g., forced tech transfer and industrial subsidies) to be addressed any time soon.
CNBC this week said officials in Beijing may be prepared to wait out the impeachment inquiry to see what becomes of Trump’s standing on Capitol Hill before deciding whether to ink an agreement with the besieged administration.
Meanwhile, risk assets were already on the back foot Wednesday after the Senate passed a bill supporting the pro-democracy protesters in Hong Kong. The House passed a similar measure last month and will vote on the Senate version later today. That could make an already rocky situation worse.
It’s extraordinarily difficult to understand how Xi could possibly acquiesce to an interim trade agreement involving concessions from China if Trump backs the pro-democracy legislation.
And yet, it’s equally hard to understand what choice the White House has vis-à-vis Congress given the bipartisan support for the bill. It’s true that the President has ignored bipartisan rebukes of the White House’s foreign policy calls before (e.g., when Trump vetoed a bill aimed at ending US support for the war in Yemen), but that seems wholly untenable with the Hong Kong ordeal.
Remember, each time the trade talks have taken a meaningful turn for the worse in 2019, US equities subsequently fell for four consecutive weeks.
Somebody get Larry Kudlow on the phone before stocks get the “wrong” idea.