- Trump has another political victory
- NAFTA is out and the new terms is in
- China and US trade spat became more difficult
US futures are trading higher as investors are hopeful that the new US and Mexico trade agreement will open many other locked doors for Donald Trump. All the pessimism about the Trump presidency is out of the window once again and it is more about the optimistic side. Trump has another political victory and successful trade deal is written all over it. This is driving the futures higher. But before we dwell into this further, let’s focus on the two major economies and their negotiations because after the US has struck a trade agreement with one of its major trade partner, things would only become more arduous for China.
There is simply no standoff when it comes to US-China trade war. Both sides are in their own delusion that they have upper hand and the other side will be throwing the towel first. Neither side is ready to admit that there has been enough bloodshed and the pain caused due their standoff had damaged the global economic sentiment. And yet there are no signs that one can say that enough is enough.
Both sides have slapped new tariffs on each other last week and their two-day meeting has failed to produce any positive outcome. $16 billion worth of new tariffs on Chinese import kicked in on last Thursday and Beijing retaliated with a tit-for-tat reaction.
Donald Trump, the US president, warned China before that if it doesn’t give in, he will collect another 25 percent in duties on Chinese imports and the $16 billion worth of new tariffs is the result of this. China has targeted steel, medical equipment, fuel and autos in its counter tariff attack of $16 billion. The net result is that manufacturers on both sides, especially over in America, have started to place orders in advance which has resulted in the higher ocean and air freights and the warehouse cost over in the US has also spiralled. This is just the kind of situation which should be avoided at any cost but of course, the two biggest economies of the world are not ready to pay attention to this.
Under the current circumstances, especially that the two-day meeting between the two counties have ended up with no result, it is likely that the current situation may very well extend into the mid-term election which may not gel well with Donald Trump.
For market participants, the number which matters now is $200 billion. These are the new tariffs which will be imposed on the Chinese goods. It is arduous for China to continue to play the game of dollar for dollar tariffs just because the import size isn’t the same. Having said this, China can take this to another level by involving US services sector or by targeting the US companies which are operating over in China – something which has been hinted by Beijing.
Of course, it is not all doom and gloom for Donald Trump. Something which has worked in Trump’s favour is the US and Mexico trade deal. Market participants have openly cheered it, and Trump has branded this as the new United States- Mexico Trade agreement. Basically, NAFTA is out and the new terms is in. The new deal will last for 16 years and every six years there will be a review of this deal and Congress will also have a say in it. The current Aluminum and steel tariffs will stay as it but the new deal will not cap imports of light vehicles.
What the market participants are excited about is that the US and Mexico deal will bring Canada back on the table and a similar deal can be done with other country. On top of this, Trump could very well change his stance all together and may try to bend China’s arm to adopt structural reforms. So the game of reducing the imbalances may not remain relevant any more for Donald Trump.
