President Donald Trump's latest tariff movement could be an unpleasant holiday surprise for the markets, with experts warning that we can see a repeat of last year's market route if the White House escalates its China trade war after throwing last week's all-but-insured "phase one" action in jeopardy.
"There is no agreement at the moment to remove any of the existing duties as a condition of the phase one agreement," White House Commerce Adviser Peter Navarro said Thursday night on Fox News, a statement Trump repeated to reporters on Friday in White House.
"They would like a replay. I haven't agreed to anything, "Trump said. "China would like to have something of a rollback, not a full rollback because they know I won't."
China's state-run media expressed surprise at the turnaround, according to Reuters, as did Doug Barry, spokesman for the US and China Business Council.
"As of last Friday, our higher levels in both governments were still discussing places for a presidential meeting to sign an agreement, so this latest rumpus comes as a surprise. Hopefully, it's a temporary setback, "he said.
The latest development is a sudden face from a week ago, when an agreement to remove certain duties on both sides and Chinese purchases of US agricultural products seemed imminent. [1
The markets gathered on the news, but the concerns crept in later this week, when both sides reportedly had not even agreed on where a signing ceremony would be The White House pushed for a place in the United States after host country Chile canceled the upcoming Asia-Pacific Economic Cooperation Conference – where Trump and Chinese leader Xi Jinping were expected to formalize a trade gap – due to protests.
The president's trust in Twitter as a medium to conduct politics puts US negotiators at a disadvantage, Barry said, and noted: "Negotiation tests on sausage making and resulting ping-ponging of positions would be better made private."
Jacob Kirkegaard, a senior at the Peterson Institute for International Economics, said that Trump may have conveyed the likelihood of a favorable deal to place Wall Street, and now he risks being boxed in by the earlier statements.
"He has in some ways already sold the deal. to markets, he said – a dynamic he speculated Beijing is trying to exploit by pushing for more comprehensive tariff relief. "They want to roll back as many tariffs as possible, and they feel he is politically and financially vulnerable," he said.
While investors welcome a reversal of existing duties, their greater concern is with those who are still on the horizon. Investors who have already been attacked by anemic business sentiment and a contracting manufacturing sector are afraid that this last part of tariffs on a wide range of consumer goods, which is still scheduled to start on December 15, can hit the heart of consumer consumption – an element that holds US economic momentum in a late-stage bull market.
Trump could still push forward with December tariffs – despite his advisers saying they lead to higher prices for American consumers – because he doesn't want to look weak.
"Chinese officials feel they have the upper hand in this round of negotiations because the United States has encountered implementing the December tariffs since they were announced," said Mark Williams, Asia's director of Capital Economics. "There is still a risk that Trump will continue with the December rates even though his advisers told him they would lead to higher prices for American consumers, because he does not want to look weak."
"They have learned that he can be agitated, and they have learned that what he really cares about is that he is far longer in the election period than he was a year ago and he is vulnerable," Kirkegaard said. " First and foremost, the Chinese are feeling that Trump's advance announcement of the deal means he will not be able to turn around and escalate, "he said." The markets have priced in normalization, phase one – a weapons pickup. "
If the reverse happens and it expected gun value instead will be an escalation, investors will be on an uneven journey, with potential for a repeat of last year, as the market fears of the trade war and slow global growth drove large indices to return their profits for the entire 2018, with S&P 500 and the Dow Jones Industrial Average who each published their worst annual results since 2008.
they can facilitate such a market route, they will probably feel that t Trump is coming back with what they want in January, ”Kirkegaard said. "This will be a critical decision point for the administration and the president."