President Trump is meeting with the wolverines to discuss the current status of terms for a “Phase One” U.S-China trade deal. Additionally POTUS tweeted a deal was close:
As we have noted the general objective from President Trump on a “Phase One” deal is a $50 billion agriculture purchase from China that would allow the U.S. to discontinue the supplemental bridge payments to farmers using tariff income. Details of this possible deal are unknown, but look for a delay in the next round of the December 15th tariffs to secure the Ag purchase. President Trump will want a written purchase contract.
The financial pundits, most beholden to the needs of the Wall Street multinationals, are overestimating the scale and scope of issues likely resolved within “phase one”. There is not likely to be resolution to the bigger issues in the U.S-China trade conflict.
Bloomberg reported: “U.S. negotiators offered to reduce tariffs on about $375 billion in Chinese goods by 50% across the board and suspend tariffs on $160 billion in goods scheduled to go into effect on Sunday.”
I would advise to take the Bloomberg report with a grain of salt; their Wall Street-centric voice generally tries to push narrative negotiations to the benefit of multinationals.
Instead, the Trump big picture common sense business approach is: the value of tariff reduction will be directly related to the value of a WRITTEN CONTRACT China purchase.
WASHINGTON (Reuters) – The U.S. Trade Representative Robert Lighthizer told senators that announcements were possibly “imminent” regarding U.S. tariffs on China, a top Senate Republican said on Thursday.
Lighthizer made the comments during a briefing for senators on the United States-Mexico-Canada trade deal, the revamped version of the North American Free Trade Agreement, Senator John Cornyn said. Cornyn did not provide additional details.
The United States is scheduled to impose tariffs on almost $160 billion worth of Chinese imports on Dec. 15. Earlier on Thursday, President Donald Trump said in a Twitter post that Washington and Beijing were nearing a trade deal. (link)
China is suffering a slow death by a thousand paper-cuts. The bleeding of cash in combination with the direct loss of $75 billion in annualized exported products that U.S. companies have now sourced from alternative ASEAN nations is biting hard.
The direct outcome is also a drop in China’s purchasing of industrial goods they would normally use in the manufacturing process. This lack of Chinese purchasing is one of the top reasons for the stall in the European economy.
There is no actual intent to reach a trade deal with China where the U.S. drops all tariffs and returns to holding hands with a happy panda playing by new rules. This fictional narrative is a figment of fantasy being sold by a financial media that cannot fathom a U.S. President would be so bold as to just walk away from China.
That ‘walk away’ is exactly what President Trump did when he left all of those meetings in Southeast Asia in 2017; and every moment since has been setting up, and firming up, an entirely new global supply chain without China.
President Trump is not currently engaged in a substantive trade agreement in the formal way people are thinking about it. Instead “Phase-One” is simply President Trump negotiating the terms of a big Agricultural purchase commitment from Beijing, and also protecting some very specific U.S. business interests (think Apple Co.) in the process.
The actual goal of President Trump’s U.S-China trade reset is a complete decoupling of U.S. critical manufacturing within China.
There is a natural lag as supply chains reorient. The ASEAN nations that have picked up U.S. manufacturing contracts first go through a process of increased productivity, expanded utilization of existing manufacturing, before they need to expand to new facilities. Machines operate 20 hours daily – instead of 16 hours; more shifts are added, etc. Until production reaches 100% capacity no ASEAN group is going to purchase the warehoused industrial machinery, not purchased by China, and being stored in the EU.
In this investment, lending and financing dynamic, is where the current Wall Street multinational corps, banks and hedgefunds are stalled and watching closely.
No-one wants to drop $100 million to help expand a U.S. manufacturer in Asia, if Mexico -via the USMCA- ends up being a more cost efficient location. This dynamic is where ratification of the USMCA is a key part of President Trump’s global trade reset.