The proposed “phase one” US-China trade deal is looking shaky following a speech by President Donald Trump at the New York Economic Club.
Traders have been crossing their fingers that the breakthrough trade deal – which would see the US suspend an upcoming tariff hike and China buy US$50 billion in American agricultural goods – will go ahead. And in his speech on Wednesday, President Trump did say that the two countries were getting closer to a deal.
“They’re having their worst year in more than 57 years, more than half a century,” President Trump said.
“Their supply chains are cracking very badly, and they are dying to make a deal. We’re the ones that are deciding whether or not we want to make a deal. We’re close.”
But the rest of the speech don’t really indicate the president is ready to make that deal.
“If we don’t make a deal, we’re going to substantially raise those tariffs,” President Trump said at the Economic Club of New York on Tuesday.
This all or nothing approach could cost the US. Trump is using tariffs as a stick, with no carrot, and the costs of compliance are high. Possibly too high.
For example, it’s unlikely that China will alter their plans to become the powerhouse high-quality goods manufacturer by 2050 or stop weaponising the yuan – two of Trump’s demands – in the face of potentially more tariffs. And the fact that Trump has inextricably linked the trade war to his political popularity gives China no reason he’ll commit to a long-term trade deal.
President Trump wields an inordinate amount of power over the trade deal process. While armies of lawyers and economists work behind the scenes, Trump is giving no indication that their efforts won’t be superseded by a single tweet.
Any deal would need to be signed before 15 December, when a new round of tariffs will go into effect.
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