The “Secret” Reason Trump Is Ready To Fold And Cut A China Trade Deal

Via ZeroHedge

Robert Lighthizer and his band of “China hawks” have made no secret of their unhappiness with President Trump’s insistence that they deliver a trade deal with China, even if it means compromising on demands for structural economic reforms, intellectual property protections, market access and enforcement. As one Twitter wit pointed out, “they’re not even pretending anymore” (the timing of Trump’s tariff deadline delay, which came just 20 minutes before futures opened, left little room for doubt):

Of course, the president’s “motivation” had become all too clear, both to his subordinates and the investing public: Trump believes a deal with China is the only thing standing between the S&P 500 and 3,000. But just in case you missed the first report (or the first four reports) about the motive behind why US and Chinese negotiators are reportedly scrambling to hash out a deal that Trump and Xi can endorse during a meeting later this month, Bloomberg is out with an anonymously sourced warning that Trump might be willing to squander all of his carefully accrued leverage over Beijing in exchange for another leg higher in equities.

Bob Lighthizer and President Trump

Coming just hours after Trump wrapped up a Monday meeting with his trade team (leaving little doubt about the source of the leak), two Trump administration insiders told BBG that they’re worried that the president is pressuring negotiators to make a deal because he’s worried that stocks could tank if the US moves ahead with the next batch of punitive tariff increases. They’re also worried that the president sees a deal as a crucial PR victory ahead of the 2020 election, as well as something that could help redeem his inability to secure a deal with North Korea in Hanoi. At risk is the possibility that Trump could approve a deal without forcing any material concessions from Beijing (aside from promises to buy billions of dollars in agricultural products and Jack Daniels whiskey).

Trump, who met with his trade team Monday, has expressed interest in hosting Chinese President Xi Jinping for a signing ceremony on a deal as soon as this month. His enthusiasm for a pact could shape crucial decisions such as balancing Chinese pressure to lift tariffs immediately against trade hawks’ arguments to initially maintain duties as leverage to assure good behavior by Beijing.

That could provide an opening for China to seal a deal without giving major ground.

“China’s concessions probably won’t be very big because a lot of their demands are what we already plan to reform,” former finance minister Lou Jiwei said in Beijing on Wednesday, calling some U.S. demands for change “unreasonable.”

Trump’s fixation on stock-market performance has shaped his assessments of his economic policies. Top White House staff know to be aware of how markets are performing when summoned to the Oval Office to speak with Trump because the president often asks: “What’s happening with the markets?”

Advocates of concluding a deal within the administration have seized on that fixation to bolster their case, one person said.

Acting as a counterweight to Lighthizer, Kudlow and Mnuchin have reportedly been counseling Trump about the importance of walking away with a deal, warning that the market could collapse without one (though we can’t blame them because Trump has shown every indication that the market’s performance directly reflects their job performance).

Trump’s economic team has told him an agreement will unleash a market rally, the people said. Advocates of a compromise with China have also told Trump it is crucial to cut a deal soon to reap the full boost ahead of the election because benefits such as more Chinese purchases of U.S. soybeans and other products will have a delayed impact and take time to reverberate through the economy, they said.

And Bloomberg certainly isn’t helping the China hawks’ cause by publicizing breathlessly bullish forecasts like this one from Macro Risk Advisors, which forecast that stocks could climb as much as 11% if a deal is struck (this, despite the fact that the market has already rebounded by about that amount off its Q4 lows).

The trade war between the two nations has weighed on the stock market, with Renaissance Macro Research concluding that the S&P 500 would be 11 percent higher without the impact of the feud. Still, U.S. stocks have regained most of their losses from the autumn when investors were more pessimistic about trade prospects.

Still, it’s impossible to say for sure how the market will react to deal news. Notably, after a series of bullish Trump tweets over the weekend, stocks had their worst day since Jan. 3 as investors apparently pivoted to a “sell the news” mentality.

Some investors say a deal isn’t likely to have a major impact because it’s already mostly priced into the market as a result of the recent positive signals from the administration. On the other hand, failure risks roiling stocks.

“The risk could be more to the downside, but on the other hand this would take away some certainty and that is good for companies looking to invest,” said Sebastien Page, head of global multi-asset strategy at T. Rowe Price in Baltimore. “If we get a meaningful trade deal, there is some upside scenarios for emerging market stocks.”

It certainly would be a cruel irony if Trump were to cave on the administration’s key demands for the sake of the headline, only to see the market crater right after as the positive news – which is now fully priced in – is finally sold.

-----------------------------------------------------
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal

-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)

Click to visit the TBP Store for Great TBP Merchandise

As an Amazon Associate I Earn from Qualifying Purchases