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The Trump Backtrack – Was that a Good or a Bad Move?

Bob Mason

The Backtrack

On Tuesday afternoon, the U.S administration announced that it would delay tariffs on certain goods from China until 15th December.

Interestingly, the U.S administration cited health, safety, and national security as the reason behind the delay.

Goods included in the list were apparel, including some footwear, and electronic items such as mobile phones, laptops, and video game consoles.

The announcement led to a rebound in the European equity markets and a sharp bounce back in the U.S equity markets, led by the NASDAQ.

It was a surprise move by the U.S administration. Just a week ago U.S President Trump stated that the U.S was not prepared to draw out a trade agreement with China.

Perhaps China’s retaliatory measures contributed to the softer stance. Beijing targeted the U.S administration’s lifeline, the agricultural sector, while also showing a willingness to let the Yuan slide.

Economic Woes

With the U.S economy showing signs of running out of steam, Trump’s concerns ahead of the Christmas season were justified. The U.S President stated that the delay on tariffs was in a bid to avoid disruption over the Christmas period.

The last thing that the U.S administration needs is a slide in retail sales over the holiday season…

While the global financial markets received the olive branch warmly, how China responds will be key.

Simply delaying tariffs until December in the interest of economic prosperity may not be the enticement China needs to start ramping up agricultural product imports from the U.S.

There were no details of what was discussed ahead of the announcement…

What Lies Ahead

While crude oil prices, the Dollar and the global equity markets rebounded, the trade war is far from over.

The latest move by the U.S falls well short of China’s demands made in the run-up to Tuesday’s announcement.

Huawei and existing punitive tariffs have already tarnished relations between the world’s 2 largest economies.

If China does agree to ramp up the import of agricultural goods from the U.S, however, it should raise the prospects of constructive talks next month. It’s a big if, however. Existing tariffs have hit the Chinese and global economies and the pain is unlikely to abate anytime soon.

Whatever happens, Trump will look to play off the latest move. Easing trade tensions places the onus on China to respond in kind.

If China fails to deliver… The U.S administration may look to justify hurting the domestic economy further in a bid to force China into submission.

Interestingly, Beijing may have time on its side. The USTR announcement may not have cited Christmas as a consideration, but Trump’s comments did and mean that there’s unlikely to be a change in its position.

It would mean, however, that the U.S administration may crank it up after the festive season should Beijing stand pat…

This article was originally posted on FX Empire

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