U.S. Boxes China into Economic Corner

U.S. Boxes China into Economic Corner

Two weeks ago, the stock market lost 1.6% of its value, wiping out all the gains made this year. By the end of last week, most of those losses were recovered, as well as concessions from China. Not only are the tariffs continuing to punish anyone who challenges mutually beneficial trade agreements, but the Trump Administration has been tightening the screws on multiple fronts.

U.S. Ambassador Dennis Shea has continually hounded the WTO over its lax enforcement of rules against China. He stated that they have not made moves to open their economy, and this is not what was expected of them when they joined in 2001. Wednesday, Canada and the EU, with approval from China and India, attempted to resolve the issue to no avail. The countries complained that America’s filibuster of appointing new judges means the court will not be able to arbitrate properly, and global commerce will suffer as a result. The US would like the kid gloves taken off when dealing with China, and for new trade deals to be the primary focus. The stance of the Trump Administration is that there isn’t much benefit to this organization if it doesn’t do things we want it to, which is why the President has issued threats to withdraw completely.

China announced this week it will be altering the “Made in China 2025” policy in order to be more welcoming to foreign investment. Barely three years after Xi unveiled his plan to make China 70% self sufficient in a decade, they are forced to offer this protectionist policy up as a sacrifice to the demons of “free trade.” Ernesto Ramos, the Managing Director of Active equities for BMO Global Asset Management in Chicago, said “This relentless pushing by Trump is making China give up some ground. That’s what’s cheering up the market.” President Trump also signaled this week that he may be willing to intervene and pardon the fair maiden heiress of Huawei. This is probably the best possible result of the situation, even if Trump cannot gain any leverage. At a minimum it can be spun as good faith without further inflaming the situation, that would be best for everyone. This week China also purchased soy products for the first time since the tariffs began.

The stock market has no loyalty. Stocks rebounded on the news China would wind down their technology transfer policies, and this caused investors to rally. However, if there is a government shut down, this will spook those same investors into running away. Also it should be pointed out that rumors between Xi and Trump caused a larger drop than gains when China talks about one of the core foundations of their economy. Even though President Trump’s tactics worked with China, the “invisible hand of the market” shows no “faith” in the same man who propelled the market to record highs.

Even though our stock market may be experiencing some out of season turbulence, all other factors point to a strong and robust economy. The booming expansion means that more people are looking for work, and unemployment is at a five decade low. Not only is a tight labor market keeping the Fed’s inflation in check, but it’s also increasing wages and labor participation. This means that troubling statistic, which equates us to third world Caribbean hell holes, is slowly being eaten away. Not only has President Trump used our economic prowess to force our competitors to alter some of their bad practices, but he’s also compelling reform of our own selfish and lazy habits.

Anonymous Slim
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