As expected a meeting between the United States and China to resolve the trade war won’t be taking in March or April. Instead, the South China Morning Post reported on Friday that a trump-Xi meeting may be pushed back to June.
As I said last week in a blog post, and as I’ve been saying the past few weeks on Twitter, I didn’t believe that we would get a China trade deal. If you read into comments made by representatives by those on the side of the United States and those on the side of the Chinese, it didn’t sound like we were close to resolving some of the key sticking points to getting a deal done.
Listen to the negotiators, not media pundits
In my opinion, if you want an honest assessment of where a trade deal is at, you have to look at what both sides are saying. Don’t listen to media pundits (this means don’t listen to me either). Listen to what the actual negotiators on both sides of the table are saying.
On Thursday a news story broke that’s an official state visit by President Xi Jinping would only happen in the event there is a trade deal with the United States already in place. This fits into with what I mentioned earlier about President Xi maintaining the appearance of strength for China.
I think that the Chinese officials are nervous about what would potentially happen in a meeting between Trump and Xi, especially considering the events that unfolded during Donald Trump’s meeting with Kim Jong-Un in Vietnam.
The Chinese don’t want to be in a position where they don’t have the upper hand. Showing signs of strength are extremely important for their economy and to maintain respect from their citizens.
China is taking desperate economic measures
China is getting desperate. China’s economic growth in 2018 was 6.6%. This was the slowest pace of growth in China in 28 years.
On Friday the Chinese government enacted additional monetary policy measures to try to help support economic growth. Officials even said they would cut “it’s own flesh” to help finance large-scale tax cuts to spur further investing.
This comes even after China rolled out measures in January 2019, such as cutting the bank’s reserve requirement ratio (RRR) to ensure there is liquidity in their financial system. They slashed this ratio by 100 basis points in January, which was the fifth such cut in the past year by China. China’s Banks doled out a record 3.23 trillion yuan in new loans in January, but the stimulus doesn’t seem to be working if they’re looking to slash taxes two months later.
What’s next from here?
The Chinese are doing everything they can to try to maintain a 6% to 6.5% GDP growth rate in 2019. I believe at this stage of the game the United States has the upper hand. However that could quickly change if the stock market comes crashing down. We are all aware that Donald Trump places high importance on the performance of the stock market as that is his barometer of success. And he made this completely transparent when he said a trade deal with China could boost the Dow Jones Industrial Averages as many as 2,000 points.
According to Robert Lighthizer, deal or no deal, trade negotiations will end within the next few weeks. The real question is, are we going to raise tariffs on China if we’re unable to come to an agreement on a deal?
Enlightenment Investing 