Trump Wants China Deal and Stocks Rally. He May Not Get Both

Hugh Fox
March 9, 2019

Trump is trying to reach a new trade deal with China and hopes to strike an agreement with President Xi Jinping in the coming weeks, but the stakes could not be higher. That in turn leads to a stronger dollar, which in itself helps increase the trade deficit by lowering the real cost of imports and increasing the local-currency cost of American goods in overseas markets. "It has become a number that fundamentally matters because it is a statistic to which Trump is accountable".

Some of this is likely due to the ongoing trade war between the USA and China. Most economists see the US trade deficit as an unavoidable effect, but also a reliable symptom, of macroeconomic success.

Agriculture workers, in particular, have argued that they already are the collateral damage. USA and Chinese officials have recently signaled that they're close to some kind of agreement, although China has only bolstered its commitment to investing in and developing its technology sector and questions about how to enforce any trade rules remain. The U.S. goods trade deficit with China hit a record $419.2 billion in 2018. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It was obtained under the threat that the United States would impose tariffs on autos and auto parts that would significantly hit Germany.

Trump's supporters insist he's tackling that via his trade negotiations with China and other United States trading partners.

In a worsening situation for U.S. farmers-partly as a result of Trump's own policies-pressure on the European Union to have agricultural products included is likely be intensified, with the threat that if they are not, auto tariffs will be invoked.

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She added that it was unusual for deficits to be so high when unemployment in the USA is so low. Economists from the University of California, Los Angeles; Yale University; and the University of California, Berkeley released the latest draft of an economic study this week that showed that Americans footed the entire tariff bill in 2018. Imports rose 2.1 per cent to $264.9bn, boosted by foods, consumer goods, computers and aircraft.

The U.S. trade deficit, both globally and specifically with China, hit record highs during 2018.

There are clear indicators that the Chinese economy is taking a hit from American tariffs.

Reducing the gap is a key plank of Mr Trump's policies.

Meanwhile, US Trade Representative Robert Lighthizer and EU Trade Commissioner Cecilia Malmstrom are meeting on Wednesday in Washington, where the issue of allowing America's agriculture industry access to Europe is expected to be discussed.

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Trump has previously called the trade deficit "unsustainable" and said it represents a transfer of wealth from the United States to foreigners. But such public pledges represent far less than the enforceable commitments to reform such policies that US negotiators are seeking.

Despite signals from Chinese and USA officials that some truce could soon be at hand, there are few signs of any truly transformed trade relationship.

USA officials also announced this week they planned to investigate Japanese titanium exports for possible tariff implementation.

As historical data shows, trade deficits usually jump following tax cuts, like the 2001 and 2003 tax cuts under President George W. Bush, and President Ronald Reagan's cuts in the early 1980s.

The U.S. and China have been going through months of tough negotiations, during which Trump vowed to reduce the trade deficit between the world's two largest economies. That proposal still needs congressional approval, and experts believe the Trump administration will need to actively sell the new NAFTA to anti-Trump Democrats and pro-trade Republicans on Capitol Hill.

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