Trump versus China: What to watch this week

From Scott Garliss at the Stansberry NewsWire:

The markets are always searching for an investment pattern…

They look for triggers that can help identify when to buy and sell during a cycle. At first, there is no rhyme or reason… But over time, they develop.

Such is the current predicament of the U.S. stock markets. They are paying close attention to the pattern developing out of the White House regarding President Trump’s style of governing. Recent trade negotiations with China are the focus. The market worries that current rhetoric could escalate into a full-blown war. This in turn could inhibit the recent pickup in global economic growth.

The timing could be unfortunate as global central banks are tightening their policies.

On Friday, we witnessed another sharp decline in the markets. Trump proposed upping the stakes in trade negotiations with China. He signaled a willingness to raise Chinese import tariffs from $50 billion to $150 billion. China said it would counter U.S. protectionism at any cost. And all the major market indexes dropped more than 2%.

Over the weekend, White House officials hit the airwaves, trying to walk back the trade-war rhetoric. White House Economic Adviser Larry Kudlow appeared on Fox News, stating that negotiations could resolve the dispute. Treasury Secretary Steven Mnuchin appeared on CBS’ Face the Nation – he doesn’t think there will be a trade war. Trump took to Twitter, where he discussed his relationship with China’s President Xi Jinping. He also said China would take down its barriers because it’s “the right thing to do”…

The pattern developing out of the administration is to present the worst-case scenario up front and then back off. We saw similar tactics used in budget negotiations. Several times, the situation became difficult with compromise seeming unattainable. In the end, everyone would come to an agreement and move forward.

This pattern keeps with the negotiating style laid out in Trump’s book, The Art of the Deal. A couple of quotes stick out. The first,

My style of deal–making is quite simple and straightforward – I aim very high, and then I just keep pushing and pushing to get what I’m after. Sometimes I settle for less than I sought, but in most cases I still end up with what I want.

The second,

Most people think small, because most people are afraid of success, afraid of making decisions, afraid of winning.

These quotes describe the style of tactics the administration is using: difficult terms in the initial stages to walk away with a softer victory in the end.

Xi Jinping speaks publicly on Tuesday. He is delivering a speech at the Boao Forum for Asia. It is the Asian equivalent of the World Economic Forum in Davos, Switzerland. Investors hope Mr. Xi will discuss market access reforms in China. If the speech focuses on reform, that will be a signal that China is not interested in trade hostilities.

The market will be paying close attention to see how the current negotiating pattern is playing out. They will use it as a proxy on future negotiations by the president and his team.

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