When Chinese President Xi Jinping met with 73-year-old President Donald Trump at the G20 June 29 in Osaka, Japan, the Chinese leader promised to start buying U.S. agricultural products, especially soybeans. Trump expressed dismay over China’s lack of follow-through after the G20, expecting Communist China to start placing orders of U.S. agricultural products. Caught in a counterproductive trade war with China, Trump Chief Economic Adviser Peter Navarro insisted that the U.S. would prevail in any trade war because, imposing 25% tariff on $250 billion in Chinese goods. Before the G20, Trump rattled markets threatening to impose 25% tariffs on another $300 billion in U.S. goods. Trump’s trade war with China has already cost the U.S. agricultural industry billions, forcing Trump to give farmers $27 billion in government subsidies, subtracting from any gains from U.S. tariffs.
Expressing disappointment over China’s lack of follow-through on agricultural buys, Trump put himself—and U.S. farmers—into a pickle, unable to prevail in a trade war without issuing whopping subsidies for U.S. farmers. With the Dow Jones Industrial Average closing at a record high of 27,808, markets got jittery not knowing what to expect with China’s U.S. agricultural purchases. “They have not been buying the agricultural products from our great Farmers that they said they would,” Trump tweeted. “Hopefully, they will start soon,” knowing that Xi expects Trump to drop the tariffs that have harmed both countries. Trump wants China to comply with recent soybean purchases without taking the tariffs off the table. Trump promised at the G20 to deescalate the trade war, postponing $300 million in additional tariffs. Trump wants Beijing to stop its predatory ways.
Trump and Navarro have accused China of piracy when it comes to U.S. technology copyrights and patents. White House officials wants China to implement laws making it illegal for Chinese companies to engage in copyright and patent infringements, something hurting U.S. various companies, especially technology. Whether there’s anything Trump can do stop Chinese piracy is anyone’s guess. What Wall Street knows is that the current trade war has cost one-half a percent of U.S. Gross Domestic Product [GDP], according to International Monetary Fund Secretary-General Christine Lagarde. China’s retaliated with $110 billion on tariffs on U.S. goods, putting the current standoff at loggerheads. Trump wants China to buy U.S. agricultural products but he doesn’t want end the trade war in good faith. Xi wants Trump to end all tariffs before both countries return to the bargaining table.
Today’s record high in the Dow could be short-lived, if Trump doesn’t see the dangers of arbitrary tariffs on Chinese products. Without China renewing purchases of agricultural products soon, Wall Street could lose its steam.. Wall Street won’t sustain the current ally unless Trump ends the tariffs. Selling off soon if Trump can’t convince the Chinese to back down. Considering cuts in the federal funds rate at the end of the month, the Federal Reserve Board must weigh out how Trump’s trade war hurts U.S. GDP heading into the Third Quarter. If Fed Chairman Jerome Powell chooses not to cut rates in the fall, markets could sell off quickly, eventually contracting the U.S. economy. Xi agreed in Osaka to restart trade talks, after prior 11-trade negotiation failed to craft a compromise. More bad news from China could send Wall Street into correction mode, U.S. economy into recession.
Trump’s running out of time to resolve the China trade war without further damage to the U.S. economy. If China refuses to honor its commitment of agricultural buys, Wall Street’s rally mode won’t last, turning into a sell-off. Navarro and Director of the National Economic Council Larry Kudlow have encouraged Trump to play a dangerous game of chicken with China. Whether Trump admits it or not, China hasn’t blinked, nor can he expect it too. If Trump wants to restore agricultural sales to U.S. farmers, he needs to end the tariffs and start fresh. Xi agreed to more talks but only if Trump is serious about ending tariffs on Chinese goods. Trump often sites the trade deficit with China as proof of the economic imbalance between the world’d two biggest economies. But truth be told, the U.S. has always relied more heavily on China for manufacturing, not the other way around.
Treading on thin ice, Trump needs to seriously consider ending the trade war with commitments from China to end its piracy of U.S. technology. Whether that happens or not is anyone’s guess. What’s known now for sure is that Trump’s trade war has harmed U.S. GDP, something her can’t afford heading into an election year. If Trump’s trade war pushes the economy into recession, it’s going to be difficult to reverse before the November 4, 2020 presidential election. “Our side expects China very soon to star purchasing American agriculture commodities, crops, goods and services,” said Kudlow. Unless there’s a reversal in Navarro and Kudlow strategy, Wall Street could start selling off. You can’t expect “us of purchase more that we can buy,” said former Chinese Diplomat Zhao Weiping. “You have to be realistic,” putting the White House on notice there’s only so much China can do.
