There is so much weird sh#% going on right now that if you did not slow it down you would miss most of it. To quote the infamous Ferris Bueller, "Life moves pretty fast. If you don't stop and look around once in a while, you could miss it." So tonight we will slow it down for you so that you do not miss any of what has happened in the last two years related to trade and President Trump.
The markets this week were waiting for the arrival of the Chinese Trade Team on Wednesday and markets were anxious. The week began with lots of threats being thrown around by both the U.S. and China that caused markets to sell off sharply on Monday and Tuesday only to begin to recover on Wednesday and then rally Thursday and Friday.
But Wednesday the expert on China was none other than South Park. You cannot make this up. Here is the link to "Band In China".
The reason question is as we move into the weekend,"... did anything change from the beginning of the week with respect to the U.S. relationship with China?" The answer is absolutely no but the perception is yes. We have seen this game time and again. Nothing gets done and then markets sniff this out and punish the inability to move forward. We expect the same despite the fact that many think the "tension" between the U.S. and China has been lessened.
Here is a blow by blow of all the stories leading into today from Monday. These stories all appeared in our Daily Briefing. If I was not writing this column every day, then there was no way I would be able to remember all these stories. In other words if you were not paying attention, then the Trump Administration pulled a fast one on you and the media. Some of these stories are linked for your review.
China will not agree to a broad trade deal or reform industrial policy as well as end government subsidies. (Bloomberg)
U.S. Department of Commerce adds 28 Chinese companies to blacklist, China to retaliate. (Department of Commerce Press Release)
China seeks a partial deal where U.S. stops tariffs if agricultural purchases return to normal. (Bloomberg)
China Global Times reports that the Chinese delegation will work through Friday and go home late Friday night.
There were so many he said/she said stories it was almost impossible to keep track of the stories. But here are a couple of them.
So what happened by the end of Friday? The only thing that "in theory" happened today was the Chinese agreed to buy agricultural products from the U.S. and in return the U.S. decided not to raise more tariffs on them next week? The first story on Wednesday best predicted the outcome for the week.
That said, it is now Saturday afternoon and as I write there is still no formal document on what happened. Here is the link to what President Trump said Friday in the Oval Office with Chinese Vice Premier Liu he, links.
I will summarize it for you. But you can read it in the links above.
1.We will come to a deal subject to it getting it written. 3 weeks, 4 weeks or 5 weeks from now.
2.Deal on intellectual property.
3,Deal on financial services.
4.Tremendous deal for the farmers. Chinese to buy $40-50 billion of farm goods.
5.Currency issues will be solved as well.
6.Technology transfer agreement.
This supposed deal is Dead On Arrival (DOA). None of it will be completed by year end. These issues are going to take years to get through if ever especially with the president who should have authored "The Art of Getting To No". Note that the tariffs enacted from below still remain from prior dates that President Trump created from January of 2018 onward. They are as follows:
1.January 2018 - Solar panels and washing machines. 30% to 50% tariffs.
2.March 2018 - Steel 25% and aluminum 10% value $25.3 billion (Section232).
3.June 2018 - Tariffs in #2 extended to the European Union, Canada and Mexico. These were removed with the agreement USMCA that Congress still has yet to ratify.
4.Section 301 -List 1 (25%), List 2 (25%), List 3 (30%), List 4a and 4b (15%).
5.The latest tariffs to go into affect next week on October 15th are now on hold. So are December tariff increases.
The total sum of tariffs and retaliation now covers some $630 billion of goods. The cost on the consumer is now $115 billion per year. I guarantee you that President Trump could not name all the tariffs above and what good are in each Sector and List.
The point I am trying to make is simple. The tariffs have gotten so complicated and numerous that even the president cannot keep track of them. It is time for the tariffs to end and to move towards free trade with the rule of law to apply to intellectual property, transfers of technology and sharing of future technology efforts. Unfortunately, at some point the markets will figure this out and investors will suffer.