“Phase 1” Of Potemkin Trade Deal Signed, Sealed, And Yet To Deliver

We have been busy collecting bets on the outcome of the U.S.-China Trade Deal.

We never believed for one moment that China would cave on any of the big issues, such as restructuring its economy and any deal would be just some token political salad dressing for the 2020 election.  Most importantly, it moves the needle very little in bringing jobs back to the U.S. rust belt as promised.  The global manufacturing sector is in recession — though appears to be putting in a bottom —  as a result of the administration’s trade policy and the U.S. farm belt has been devastated and may never fully recover.

But. if you know the trip to Disneyland is coming to end, its always best to stay in Fantasyland as long as possible.

So, after all the American economic carnage caused by Trump’s trade war, is the administration about to, or willing to cave on what they said were the most important issues:  1) intellectual property protection, 2) industrial policy reform?

Will Trump cut another meaningless Potemkin Trade Deal?  – GMM, Nov ’19

Socialism

Moreover, much of the deal depends on whether the Chinese will abide by Soviet-style import quotas.  Whatever happened to free markets?  Import quotas and managed trade are about as socialist an economic policies there are,  folks, except maybe nationalizing the “commanding heights” of the economy.

We also thought “Socialism” was a big trigger word in the U.S. body politic?   But it is 1984-ish out there and even most golfers do not believe the NCGA handicap system is tantamount to welfare.  In our local skins games,  the first question we ask our opponents upon entering the tee box is, “how many food stamps do you get on this hole.”  We do not disparage those on SNAP “as there but by the Grace of God go we.”

The deal has caused lots of pain and little gain just, much like the USMCA.

World Is Still Worse Off

The world — not stockholders — is worse off today than when the tariff war began as illustrated by the Peterson Institute for International Economics (PIIE) charts below.   Mr. Market was surprised yesterday that the tariffs are remaining in place?  Now that’s efficient but not surprising as he is going through one of those phases experienced about every ten years.

We are thankful, however,  the economic hostilities have momentarily ratcheted down but the game is hardly over.

We hope the World Trade Organization will reinvent itself, strip China of its developing country status, which allows for special and differential treatment, and we move back from the brink to a rules-based global trading system.

Dog Food

The following excerpt from the text of the deal exemplifies our perception:

How many S&P points is the above paragraph worth?

Both parties will begin discussions on China’s imports of, say, dog food?

Seriously, after more than two years of negotiations, they couldn’t even agree on dog and cat food imports?   

We fear tariffs are the new paranormal.

Source:  PIIE