Trade War: This China Strategy Could Backfire Significantly

The U.S. and China may be scheduled to meet this week.

But chances are slim we’ll see any progress on the trade war.  

In fact, China is reportedly reluctant to agree to a broad deal at all.  Vice Premier Liu He already noted his offer to the U.S. will not include commitments on reforming Chinese industrial policy or subsidies, as reported by Bloomberg.  That could pose quite a problem because those are the demands from the White House.

Apparently, China is attempting to capitalize on President Trump’s recent challenges, which includes a slowing economy and the impeachment issue.  However, analysts note such a strategy could backfire significantly on China.

“Beijing is about to make another epic miscalculation,” Michael Every, senior Asia-Pacific strategist at Rabobank said, as quoted by Business Insider. “Trump ALWAYS escalates when put under pressure, and has never shown anything so far but a tendency to raise tariffs when disappointed.  If China thinks Trump is going to crumble now just because he faces possible impeachment, they are about to get a very nasty surprise — and hence so are markets.”

A Lack of Resolution Could be Disastrous

The trade war has walloped global economies.

Just in the U.S., the ISM said manufacturing activity fell to its lowest level in a decade, as the services sector grew at its slowest pace in three years.  While the weak data raises the likelihood of further rate cuts from the Federal Reserve, it could be disastrous for markets near-term, and could push us into recession.

In fact, according to the National Association of Business Economics (NABE), the risk of recession is rising thanks to the trade war. 

“The rise in protectionism, pervasive trade policy uncertainty, and slower global growth are considered key downside risks to U.S. economic activity,” said NABE survey chairman Gregory Daco, chief U.S. economist, Oxford Economics, as quoted by CNBC.

At the moment, the Dow Jones is now another 95 points.  The NASDAQ slipped 23.