[ad_1]
To make America once again, President Donald Trump is trying to weaken China. This can be easier said than done.
Trump's brutal tactics to reduce the trade deficit with China have rocked business leaders, investors and even the Federal Reserve because of the prospect of higher costs for US consumers and importers, including Walmart Inc. ( WMT). Along with the signs that Trump's trade war with China may last much longer than many investors currently expect, there is concern that US exporters will see lower profits as a result of retaliatory measures imposed by the US. China.
The conflict intensified this week as Trump pledged to respect China's 10 percent tariff on imports by $ 200 billion next week, bringing the total to $ 250 billion this year. China immediately promised to retaliate an additional $ 60 billion of goods and services from the United States. A senior unnamed Chinese official told The Wall Street Journal that the country would not negotiate "with a gun".
Chinese leaders, who last year made a major effort to reduce borrowing in the country's financial and business sectors, have since decided to stabilize their national economy in the face of trade pressures. Diana Choyleva, a researcher at Enodo Economics, said the measures include reducing electricity prices for the industry while reducing taxes on trucks and storage facilities and canceling some road tolls.
Choyleva estimates that the Chinese economy, the second largest in the world after the United States, grew by 4.4% last year, compared to 6% in 2016. But since then, growth has accelerated to 5 , 6%. At the same time, a drop this year in the country's currency, the yuan, has boosted domestic revenues for Chinese exporters, as many of their sales contracts are denominated in dollars. In comparison, the US economy grew at an annual rate of 4.2% in the second quarter, prompting Trump to self-regulate.
"For the moment, Chinese policymakers are convinced that they can withstand an endless confrontation with the United States, both commercially and strategically," Choyleva wrote in a report on 6 September.
Dec Mullarkey, general manager of investment strategies at Sun Life Investment Management, which oversees $ 47 billion, believes that China can withstand a widespread commercial attack. This is essential to President Xi Jinping's determination to make his country a world leader, both economically and strategically.
And he thinks that US equity investors do not consider risks; The Standard & Poor's 500 index and the Dow Jones Industrial Average Index have reached record highs. Chinese exports to the United States account for only 4% of gross domestic product, so any impact of Trump's tariffs should be manageable, according to Mullarkey.
"They are at a point of inflection where they want to establish that it is about the new China, that they have arrived on the world stage and that they do not want to be considered vulnerable to external intimidation, "he said in a phone. interview. "At the moment, US markets underestimate what could be a very prolonged trade."
Trump 's tariffs on the latest $ 200 billion cycle of Chinese imports are expected to increase to 25% by the end of this year.
Economists at Deutsche Bank, the German lender, estimate that such a level would add about 0.5 percentage point to the US inflation rate, which is currently around 2%. The additional price increases could prompt the Federal Reserve to raise interest rates to avoid inflation, which could slow down economic activity in the United States.
According to Fed officials, some companies in the United States have already canceled or delayed the purchase of new facilities and equipment – crucial investments for future earnings growth – due to the threat of a related economic slowdown. Trade.
"Even though we still think it is possible to reach a settlement in the first half of 2019, the risks that the trade war is going beyond our current assumptions have increased," wrote the Deutsche Bank economists in a report.
TS Lombard, an economic forecaster, says that China "feels aggrieved" by the demands of the Trump administration, since the aggression represents a threat to the ruling Communist Party's power.
"As a result, Beijing has also moved towards a harder line and should avoid further talks, blaming the United States for its lack of sincerity in the negotiations," according to a report released this week by the London-based company.
Of course, Trump could always choose to back off. If his administration cuts an agreement before the November elections in the United States, the actions could jump, while consolidating the support of Republican voters favoring businesses who simply want the trade war to end.
"He believes that he has to show a win, he can then declare himself and have an agreement," said Mullarkey of Sun Life.
On the basis of Trump's balance sheet, the decline seems unlikely.
"China has been profiting from US trade for many years," Trump tweeted this week. "They also know that I am the one who knows how to stop it." He also wrote: "Tariffs put the United States in a very strong bargaining position."
Such a surprise in October could be the president's best chance to save the victory in his commercial crusade.
Because it is unlikely that China concedes.
