Trade War: Why Trump Might Need to Expedite the Talks



  • The US-China trade war has kept investors on their toes over the last year. Despite some of President Trump’s recent comments, there is optimism that the two sides would be able to reach some sort of a trade deal.
  • So far, a strong US economy has strengthened Trump’s hand in the trade talks. However, the consumer confidence index and the PMI survey show that it could be a fast-changing scenario. A slowing US economy would reduce Trump’s leverage in trade talks.
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Trade war

The US-China trade war has seen several twists and turns over the last year. There have been truces followed by escalation. At times, it has appeared that a trade deal between the world’s two largest economies is within reach.

However, there have been instances where a US-China trade deal has appeared to be a mirage. This month, there has been some de-escalation in the US-China trade war. Despite some of Trump’s recent comments, China has considered de-escalation.

The US economy and trade talks

Over the last year, the US economy has been quite strong. While the economy is not as great as Trump frequently touts, it has nonetheless looked resilient amid the global slowdown. A strong US economy strengthens Trump’s hand in the trade war.

However, Chinese economic growth has fallen to multiyear lows, and a private survey showed that its third-quarter growth could fall even further. Reports of US-based Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG) shifting some of their operations from China are not helping matters for China.

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Trade war and tariffs hurting the US economy

It’s not that the US economy has been immune from the trade war and tariffs. However, the US consumer sector has been remarkably strong, boosting the US economy.

US economic growth was better than expected in the first two quarters of this year. However, two recent surveys showed that the trade war uncertainty might be reaching a tipping point.

Trump’s tariffs and US consumers

Several economists have been predicting a recession due to the ongoing trade war. So far, US consumers have denied recession pundits any victories. A strong job market has helped buoy US consumer sentiment.

On September 24, the Conference Board said that the US consumer confidence index dipped sharply in September. The Conference Board noted, “The escalation in trade and tariff tensions in late August appears to have rattled consumers.”

The Conference Board added, “While confidence could continue hovering around current levels for months to come, at some point this continued uncertainty will begin to diminish consumers’ confidence in the expansion.”

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Trade war and the US job market

If US consumers have given their message, the corporate sector isn’t far behind. Last year, US companies such as Apple, Amazon, Facebook (FB), and Alphabet opposed Trump’s China tariffs. Now, the September flash PMI survey shows that the trade war is hurting corporate hiring.

The IHS/Markit September manufacturing PMI survey found that for the first time since 2010, there are job cuts across the surveyed companies. The survey also painted a dim picture of the US job market. It said that the monthly US nonfarm payrolls could dip below the 100,000 level, which would be seen as a sign of a weak job market.

Should Trump expedite the trade deal?

If the US employment market slides, it could dent consumer sentiment and hit consumer spending. Strong US consumer spending has helped the US economy even as the manufacturing sector and corporate investments faltered.

In our view, this scenario could be the tipping point for the Trump administration to seal a trade deal with China. Further escalation of the US-China trade war could jeopardize US economic growth and weaken Trump’s leverage in the trade talks.


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