Well, grab a lifetime supply of popcorn because we are in for a long ride on the U.S.-China trade roller coaster, warns Larry Kudlow.
Speaking to reporters outside the White House, Kudlow warned that trade negotiations could go on for longer, even lasting a decade.
“A deal of this size and scope and central global importance, I don’t think 18 months is a very long time,” Kudlow said.
“The stakes are so high, we have to get it right, and if that takes a decade, so be it.”
The trade spat has already lasted for 18 months.
Well, a new round of negotiations are on the horizon and investors’ emotions will be volatile in the coming weeks. Suffice it to say, their hearts will be broken again.
Even if Trump wants a deal, it likely will not happen until just before the election.
: Imagine that sometime in the last twenty years, an analyst at the Ministry of Finance of the People’s Republic of China approached their superior with this idea: How about we have China accumulate trillions in holdings of sovereign and similar risk-free debt securities, mostly American treasuries, and then do something which collapses the world economy. Then, China can use it hoard of bonds to buy up assets around the world at distress prices.
Assume the superior then takes that suggestion to the parent agency of the Ministry of Finance, which is the State Council of the People’s Republic of China. After some discussion, the State Council concludes that the analyst at the Ministry of Finance had an interesting idea. However, the negative consequences to China that could occur if the rest of the world thought that China had engineered a collapse of the world economy, made the idea too risky.
Now fast forward this thought experiment to 2019 and assume the State Council is trying to decide on how to respond to Trump’s trade war. They might decide to dust off the analysts’ idea to utilize their bonds to buy up assets around the world. All they would have to do was to pretend to be working toward an agreement, but never quite reach one. This would allow Trump and the United States to take the blame for the collapse of the world economy, that ensued.
That scenario may be far-fetched. A more likely outcome is that hundreds of years from now, Trump is only remembered as the president who started and lost a trade war. What would signal that Trump lost the trade war? That would be when China and much of the G20 countries enter into a comprehensive multinational trade agreement where the USA is excluded. Many foreign leaders detest that Trump has reneged on agreements signed by previous American presidents, such as the Iran nuclear deal. This is true even if some of them have some sympathy for some of Trump’s arguments.
China and many other countries remember that when China joined the WTO, it agreed to considerably harsher conditions than other developing countries. President Clinton and, then later, Bush forced China to accept changes in China’s economy and trading practices, before agreeing to allow China into the WTO, that were considerably stricter than were imposed on any other country previously or since. That Trump is essentially now trying to force new changes in China’s economy and trading practices irks many world leaders. That includes those world leaders whose view is that China’s development since it was admitted to the WTO in December 2001 suggests that some additional reforms by China are now appropriate.
A similar result, in terms of the isolation of America and subsequent reduction in American living standards, could occur if Trump withdraws from the World Trade Organization. Trump might quit the World Trade Organization in response the enormous financial penalties that will be imposed on America for the tariffs Trump has already imposed. Those tariffs constitute blatant violations of WTO regulations. Those cases, which have already been filed, are now slowly working their way through the World Trade Organization adjudication process. Included in the pending cases is the case just filed by China regarding the new additional tariffs that took effect on September 1, 2019.
https://seekingalpha.com/article/4290032