Trump: ‘Think What Happens to China When I Win’

On September 3, in a tweet, President Donald Trump said, “We are doing very well in our negotiations with China. While I am sure they would love to be dealing with a new administration so they could continue their practice of ‘ripoff USA’ ($600 B/year), 16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot.”

In another tweet, he added, “And then, think what happens to China when I win. Deal would get MUCH TOUGHER! In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!”

Trump also tweeted, “For all of the ‘geniuses’ out there, many who have been in other administrations and ‘taken to the cleaners’ by China, that want me to get together with the EU and others to go after China Trade practices remember, the EU & all treat us VERY unfairly on Trade also. Will change!”

The big question

Economist Mark Zandi believes that the trade war is hurting the US economy. However, a more important question is whether crushing the Chinese economy will bring those jobs back to the US. Until now, things have unfolded in a different way. Asian nations such as Vietnam and Taiwan have seen their trade surpluses with the US soar at China’s expense.

Until now, the US economy under Trump’s presidency has performed well. However, the trade war has led to a slowdown outside the US. On September 2, the US dollar rose to a two-year high. A stronger dollar could reduce US export competitiveness. It could also drag on growth-driven assets such as oil. Lower oil prices will lead to a reduction in capex. Energy is an important capital-intensive industry in the US. Like energy, other sectors could see financial stress due to rising tariffs. Ultimately, this cycle could lead to jobless growth in the US.

Trump might contribute to overvaluation

So far this year, the S&P 500 Index (SPY) has been the top-performing equity index among developed economies. However, its PE ratio has risen to 19.8x compared to its level of 17.8x from after the subprime crisis until 2018. More money flowing into the US financial market could increase trouble for SPY in terms of valuation.

The US presidential election will be held in November 2020. If President Trump is reelected and pursues a tougher trade deal, then the US could be exposed to higher risk. A trade deal with China is necessary, but a tougher stance will have its own disadvantages.