For weeks now , Trump has been telling us again and again that trade talk is going well. The market was caught by surprised when Trump roll the market with his tweet threatening to raise the tariff rate on USD200bn of Chinese exports from 10% to 25% this Friday at 1201 (spore time) to penalise China for slow progress and attempting to renegotiate its commitment to commit changes required by the trade agreement into Chinese law.
This blog believe that these threats are most likely a negotiation tactics meant to incentivise a deal more quickly . This blog do not expect the Trump would allow the talk to colapse after months of hard work, and though there has been a deterioration in trust on both sides, raising tariffs would be counterproductive. In particular it would make it impossible to secure an agreement from China to increase its purchases of US products. Without such an agreement it would be hard for the Trump , going into next year’s election, to demonstrate that he is ‘winning’ the trade war. If the Trump miscalculates and China walks away from a deal , stocks will colapse in a hurry. US stocks has been up past 5 months , the sharp drop in stocks after Trump’s tweet suggest that rising hope of a trade deal have been the key reason why.
This blog base case case remains that an agreement will be done before mid-year. Once the deal is done , the focus will shift to compliance which will prove difficult and Trade tensions will again escalate .
In the meantime , the tariffs is scheduled to be raise on Friday at 1201 pm (Spore Time), traders should keep a close eyes on the US indices futures market at 1201 pm for early clue of the outcome and seize the opportunity to take early action.
All posts and charts are for educational and illustration purposes only