August 2, 2019
He's badgered the Fed for a rate cut for more than a year. By driving a harder line on negotiations with China, he ultimately soured business confidence to the point that the Fed was forced into a “defensive” cut.
With that in mind, yesterday I thought we should expect Trump, with a rate cut now under his belt, to get a deal done with China.
As we know, trade talks were restarted this week, starting a timeline that would get the ball rolling on a deal coming out of the expected rate cut. But China seems to be extending the timeline, pushing off further meetings until September.
With that, today, instead of an announcement that a trade deal is getting close, Trump came with even more aggressive posturing – a threat to ramp UP tariffs beginning September 1.
The market took this as a message that a deal was nowhere near a consummation. I think we have Trump turning UP the heat to get a deal done — sooner, rather than later. The September 1 deadline would target getting China back to the table sooner, and a trade deal this month!
Trump has had the upper hand in these negotiations (working with the backdrop of strong economy, relative to a weakening Chinese economy). But as we get closer to the 2020 elections, China finds itself with building leverage.
My view: The worst case-scenario for Trump is China turning its back altogether on a deal. That would likely spiral global financial markets, global confidence, and the global economy. And that would be a deadly recipe for the prospects of a second term for Trump.
Regardless of your political views, that's a scenario no one should want.
The erosion in global confidence would overwhelm (global) fiscal stimulus and monetary stimulus, leaving both with no ammunition into what would likely be a global depression (as we were flirting with in mid-2016), not recession.
Alternatively, if Trump does a deal (any deal), into a solid economy, with global central banks in an easing direction, global markets and economies will boom. That gets Trump re-elected. If he wants to press China on more demands, he can do it in the second term.
If you haven't signed up for my Billionaire's Portfolio, join now — get your risk free access here.