How Goes the Trade War?

The post-Labor Day stock markets were all down on Tuesday, and the conventional wisdom is that it had something to do with the ongoing global trade war that President Donald Trump has been waging. Trump insists that China is getting the worst of it, and promises the Chinese will soon come begging to sign the most spectacular trade deal America ever made, with the rest of world falling in line shortly afterwards, but for now the smart money doesn’t seem to be betting on it.
China’s economy is indeed taking quite a beating in the trade war, but a downturn in the world’s second largest economy doesn’t bode well for the global economic forecasts, and around the world the markets are jittery about that. Even here in fortress America the bond markets are signaling that the smart money is nervous about the domestic economy’s short term prospects, business investment has been declining, a closely watched index of America’s manufacturing output just fell below 50 percent for the first contraction since 2016, and the smart money around the world will surely fret about that,
America is also taking quite a beating in the trade war, and its consumers are paying higher prices for Chinese goods or American-made products with Chinese parts, no matter what nonsense Trump spews about the Chinese paying all the tariffs, and the farmers and aircraft workers here in Kansas are losing vital markets, and so far it seems a trade war of mutually assured destruction. Trump remains confident it’s all soon leading to the best trade deal ever, with a stock market bonanza sure to follow, but for now both we and the smart money aren’t so sure about it.
Trump still boasts of his close personal friendship with the Chinese dictator Xi Jinping, but Xi is a dictator-for-life and Trump is a mere president who has to run for reelection next year, and hopes to run on boasts about the best economy ever, so Xi seems in the stronger negotiating position. Perhaps Trump would have a stronger hand if he were negotiating on behalf of an entire world fed up with China’s undeniably unfair trading policies, but Trump has also chosen to feud about trade with most of the rest of the world, and there’s a reason the smart money isn’t betting on the strategy.

— Bud Norman

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