Trump has a strong stance towards china and this can become even firmer if he brings Canada on the table this week
Trump is famous for not easily backing down from his agenda hence the trade war and the new trade agreement with Canada will remain the focus for the markets during this week as we said yesterday. Trump promised to impose another $200 billion of tariffs on the Chinese import in order to balance the trade because he calls the current landscape unfair. Therefore, investors will be watching how he is going to bring this in the system and most importantly, a tit-for-tat reaction from Beijing.
There is a possibility that Trump may actually start to apply these tariffs in different chunks to keep China on its toes. Such a strategy creates more pressure on the counter party as the pain from the headline makes the blood bleed more.
Remember during the previous round of the tariffs, the United States applied the whole $50 billion of tariffs in two stages, first it was an introduction of $34 billion of tariffs and then came the $16 billion of tariffs. What it did to the sentiment is that the markets were in panic mode every time these specified dates came closer to the time. However, to the Chinese luck, we didn’t see much impact on the actual economic data as the factory orders remain stable.
However, the recent PMI reading for Caxin wasn’t supporting the above argument as it confirmed sign of weakness. If you look at the private manufacturing survey, it paints a very dull picture, it has hit a 14-month low reading. The new order figure expanded at the lowest pace since May 2017, however the output remained the same. Hence, today’s Caxin services data will provide us more information about the shape of the economy.
The fact is that Trump is taking all these actions because the economic data is still coming strong and in many occasions, a lot more better than the forecast. Hence he is fearless with his approach, however it is important to remember that it takes time for the effect of this data to tickle down the economy.
The net impact of this trade war would leave a kind of scare which may not go away any time soon. Another important aspect to pay attention to is this that trade war isn’t something like a weekly data where one could easily forecast what the expected reading could be, so anyone who is trying to make any kind of prediction could be equal to some taking a stab in dark. So by the time we may see any hick-up in the economic numbers, it may be too late to apply any policy for collateral damage.
