At the beginning of 2017, Donald Trump, President of United
States tried to contain Beijing by restrictive economic policies. At the time,
he stated that US$346 billion US trade deficit was due to imbalanced trade with
China. In year 2019, this deficit has reached US$419 billion, which shows well
that Trump's economic policies toward Beijing are not yielding positive results.
China's stoppage of US agricultural products and imposition
of reciprocal tariffs on American products indicate that this Asian economic super
power does not intend to surrender to the US. In such circumstances, there will
be no opportunity for President Trump and his companions to maneuver. Many US
economic and policy analysts believe that in year 2020, China can hurt Trump in
the re-election. It is already evident that China has become a symbol of
America's economic and political failure in the world.
Lately, Bloomberg has reported that the ups and downs of
asset prices on any given day are being determined, more and more, by the words
and actions of three men. First, of course, is Donald Trump, who has
rediscovered his power to send markets soaring—or into a tailspin—with less
than 280 characters on Twitter. Then there’s U.S. Federal Reserve Chairman
Jerome Powell, who repeatedly finds himself on the receiving end of nasty Trump
tweets for abiding by his mandate to do what’s best for the U.S. economy, which
isn’t necessarily always the same thing as what’s best for Trumph. And in
Beijing, it’s Xi Jinping, the president of China who sits atop a Communist
Party in which politicians and central bankers famously sing from the same
hymnal, at least when the audience is outside observers.
With each of these collisions, the fragility of the global
economy and markets is exposed. It seems increasingly possible that something
big and important is broken. Investors who’d believed Sino-U.S. relations were
stabilizing, if not improving, were caught on the wrong foot when tensions
abruptly escalated. The prevailing assumption that President Trump won’t allow
the trade war to continue through the 2020 presidential campaign season is
being reconsidered, as the two sides appear further apart than ever. Economists
at Goldman Sachs Group Inc., no longer expect a trade agreement before the
election and see the Fed cutting its benchmark interest rate two more times
this year in an effort to counteract the economic damage that will be done by
the impasse.
A question being openly debated on Wall Street is whether
lower borrowing costs will be enough to fend off a recession. There signs that
economic activities in the United States are shrinking. In Europe, whose
factories are caught in the crossfire between China and the US, manufacturing
barometers already point toward recession. Trade war being converted into
currency war—in which countries race to devalue to get a competitive edge for
their exports.
Other disturbing signs are could US sell F-16 fighter jets
to Taiwan? Is Washington supporting anti-Beijing protesters who’ve paralyzed
Hong Kong this summer? And what could be at risk among more than a quarter of a
trillion dollars of US investments in China since 1990?
All these questions are arising at a time when Wall Street’s
vacation calendars are jammed and markets seem especially easy to rattle.
Evidences of stock market volatility rose in August, some of the ugliest
collapses in equities market over the past decade have occurred in this month.
The recent rush into safe havens sent gold to a five-year
high and triggered a rally in Treasuries that pushed 10-year yields to their
lowest since Trump was elected in 2016. At the same time, rates on three-month
Treasury bills were higher than those on 10-year bonds—a phenomenon known as a
yield-curve inversion that’s widely considered a reliable warning of an
impending recession. The lower long-term yields signal that markets expect
interest rates to come down in response to weak economic growth.
With each of these collisions, the fragility of the global
economy and markets is exposed. It seems increasingly evident that something
big and important is broken. Investors who’d believed Sino-US relations were
stabilizing, if not improving, were caught on the wrong foot when tensions
abruptly escalated.
The prevailing assumption that President Trump won’t allow
the trade war to continue through the 2020 presidential campaign season is
being reconsidered, as the two sides appear further apart than ever. Economists
at Goldman Sachs Group no longer expect a trade agreement before the election
and see the Fed cutting its benchmark interest rate two more times this year in
an effort to counteract the economic damage that will be done by the impasse.
According to a CNBC
report, a trade war with China hasn’t tarnished his image as a champion for an
unlikely group: farmers and ranchers. Farmers are one of the most visible
casualties of the Sino-US trade war, which escalated sharply lately as both
sides landed blows that could hold potentially devastating consequences for US
agriculture, yet they appear to be sticking by Trump. More than 75% of farmers had
voted for Trump in his successful campaign against Democrat Hillary Clinton in
2016. They are still sticking by him because they consider Trump a better
option as compared to those running presidential race.
