The Increasing Risk of China Trade Debacle

In case you missed our Week In Review, let us reiterate our concern about a potential major debacle in the U.S.-China trade negotiations.

It appears President Trump and his negotiating team has, once again, painted themselves into a corner with no exit unless to make major concessions.  Just as the White House is boxed in with a government shutdown disaster.   Bad negotiating.

China Now Has The Upper Hand

The Chinese negotiating team carries a reputation as “professional, productive and ruthless and has been described by a group of their international counterparts as “among the best in the world.”   They have clearly outmaneuvered the American team, in our opinion.  We’re not rooting for this, we are rooting for good governance and a positive outcome for the global economy, ergo the country.

Potemkin Deal At Best

The China trade deal, which should be a sell the news event, and will most likely be another Potemkin Village, just as we expected.

WASHINGTON — As a critical round of talks with China kicks off next week, the Trump administration is increasingly pessimistic that Beijing will make the kind of deep structural changes to its economy that the United States wants as part of a comprehensive trade agreement, according to officials involved with the talks.

The United States is now weighing whether large Chinese purchases of American goods and more modest economic changes will be enough for a deal to end a damaging trade war between the two nations and help calm volatile markets. 

A Chinese delegation led by Liu He, China’s vice premier, will meet with Robert Lighthizer, the Trump administration’s top trade negotiator, and Steven Mnuchin, the Treasury secretary, on Jan. 30 and 31. The two countries are racing to strike an agreement by March 2, a deadline set by President Trump and President Xi Jinping of China.  – NY Times, Jan 21th

Mnuchin and Malpass are in way over their heads and outmatched by these guys.

And this nonsense is really starting to get old,

Moreover,  Xi is not obsessed with every tick in the S&P  Shanghai and oversees a command economy not subject to market discipline.  The Chinese negotiators know it.

The indicator to watch is China’s international reserves, which are not observable in real time but will be reflected in the currency.  If CNY moves back above 6.90, advantage Trump.

South Korea, meanwhile, negotiated a permanent steel-tariff exemption in exchange for allowing additional U.S. auto imports. But the claim of a “renegotiated” Korea-U.S. free-trade agreement should be viewed with skepticism. U.S. automakers already don’t export the allowable number of cars into South Korea today, let alone the expanded number. And South Korean car exports, the main sources of the trade imbalance, were left alone. It was a limited, face-saving deal that everyone can tout as “preventing” a trade war.  – New Republic

It’s time to increase “the Mad King” premium, folks.   S

Starting to feel the bell is about to ding and those lights about to come on.