Pro Perspectives 8/9/19

August 9, 2019

As we end the week, Trump continues to posture for some leverage to get China back to the table, sooner rather than later. 

This morning he threatened to cancel the September talks.  That may sound like a threat that will lead to the opposite outcome (a later return to talks, rather than sooner).  But as we've discussed, Trump seems to be making the bet that ramping up the threats/penalties will thwart China's attempt to play "hold-out" through next year's election.  With that, it does appear his formal "currency manipulator" complaint against China may have done the trick (to restore some leverage).  We can see it in the steady fixings by the PBOC since Sunday night. 

The question is: Is the Trump administration willing to take the risk of a "no deal" into the election, which would likely leave the global economy deteriorating sharply as people sit on their hands awaiting an election outcome?  I think the answer is a clear no. 

Consider the White House's China strategy is being highly influenced by Peter Navarro (Assistant to the President and Director of Manufacturing and Trade Policy).  And his well documented viewpoint would suggest he and the White House believe the stakes are far too high, to risk turning it over to another administration (with no appetite to force structural reform). 

For perspective, here's how Amazon summarizes Navarro's 2011 book, Death By China …

"The world's most populous nation and soon-to-be largest economy is rapidly turning into the planet's most efficient assassin. Unscrupulous Chinese entrepreneurs are flooding world markets with lethal products. China's perverse form of capitalism combines illegal mercantilist and protectionist weapons to pick off American industries, job by job. China's emboldened military is racing towards head-on confrontation with the U.S. Meanwhile, America's executives, politicians, and even academics remain silent about the looming threat…(more here)."

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