This is much bigger than expected, which likely indicates the pressure Trump is feeling from America’s empty ports. This will surely get some trade restarted, but the damage from the last several weeks is done and any trade that begins today will take weeks at minimum to reach America’s shores. Trump was openly talking about girls getting fewer dolls for Christmas, revealing that even his rotted brain understood the supply shock he created. It’s anyone’s guess what turning off supply chains across the Pacific and then mostly turning them back on will do, but for the next 90 days, it seems like worst case scenario is off the table.
Mark Williams, chief Asia economist at Capital Economics told the Wall Street Journal that with an effective tariff rate of 40 percent, Chinese exports to the United States are still likely to fall by up to one-third, a huge decrease in the engine of global trade. Plus, Trump hasn’t actually exacted any concessions from Beijing yet. He basically just promised to stop pointing a gun at his own head for 90 days and is now calling that a win, but as Williams told the WSJ, “it will be interesting to see whether China is willing to offer anything substantive in these talks, but I can’t see that they’ll feel under a huge amount of pressure to do so.”
Because China called Trump’s bluff and he caved. China said any prerequisite for their negotiations must be the United States making a concession on the insane embargo Trump had imposed, and he did so, but only temporarily.
Trump doesn’t have the leverage he thinks he has. China needs to find any buyer for their stuff, and while there is no buyer more powerful than the United States, money is a lot more fungible than factories are. The United States needs products that at costs we have become accustomed to, must be manufactured in China or have time taken away from producing them to move factories to another country with low labor costs. China has more options to reorient trade away from us than we do from them. Add in the fact that Trump’s actions have already shaken the economy and destroyed consumer confidence, which as a dynamic unto itself could create a recession, and Trump has placed immense pressure on himself to end this trade war by effectively taking the US economy hostage and demanding that other countries acquiesce to his insane demands or else he’ll shoot himself in the head.
But it’s not over. We are still in the midst of his previous 90 day pause that raised tariffs on China and lowered them for everyone else, and all he has done so far is temporarily relieve pressure off some very stressed markets.
There is no deal in this deal. All Trump did was create space for negotiations to take place with China over the next 90 days, but the crux of the issue in this trade war still exists: the president of the United States thinks that trade deficits are inherently bad, and this illogical notion is why we are in this mess in the first place. Trump is just kicking the can down the road, and should he fail to reach a deal in the next 90 days with China or our other major trade partners, he has said the huge tariffs which caused markets to panic will go back into place. Markets are pumping today, hoping that president deals will back down yet again from his stupid trade war in the future, and given the pattern of fundamental weakness that Trump has established, both markets and the Chinese are justified in betting on that happening.
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