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Trump in Delicate Balancing Act of Bashing China, Saving Trade Pact

Trump in Delicate Balancing Act of Bashing China, Saving Trade Pact
(AP)

By Thursday, 21 May 2020 12:36 PM Current | Bio | Archive

The Trump Twitter Feed has been more active than usual on China. Yes, this is always a somewhat unnerving signal for financial markets, Bloomberg reports.

In the meantime, the White House has also issued a 20-page report that expands on President Donald Trump’s get-tough rhetoric on China, the Associated Press reports.

Financial markets are likely to be concerned about the implications of all this for the China trade subject during the expected so-called economic rebound.

The third quarter will see very strong growth because there is pent-up demand from domestic consumers. Nevertheless, investors could do well keeping in mind that the level of economic activity will still be weak, and further problems over trade with China will make it difficult to restore U.S. living standards quickly.

Trump seems to be trying to find a balance keeping the trade deal with China alongside enough anti-China rhetoric to keep his supporters happy. That is a delicate balancing act, which will require nuanced and diplomatic skills.

In the meantime, the U.S. Senate has passed a bill that could effectively remove Chinese companies from the American stock exchanges, which is in fact not surprising and might show the direction of where the Sino-U.S. tensions could be headed for.

The bill has now to be passed by the House of Representatives before being signed into law by Trump, the BBC reports.

If a trade war is to be avoided, a battle over the “capital account” could be an alternative.

This is, perhaps, a higher risk strategy for the United States, which after all depends on foreigners being disposed to lend it cash.

Yes, this is an extremely complex and unprecedented problem the U.S. has to face in the context of the actual recessionary situation that really has come out of nowhere. This recession is particularly brutal, since the economy has been shut down abruptly and its recovery, for now, depends on businesses being able to operate in a world of social distancing. This recession is also different in that it is the first time ever it started in the service sector.

As Mark Zandi, chief economist at Moody’s Analytics, told CNBC: “The other concern is when we talk about the re-openings, how re-opened are we really going to become? That depends on how many businesses survive to the other side of the re-openings. I think that’s driving these concerns that we’re going to see more business failures.”

Yes, a lot of uncertainties for investors and economists.

Finally, the IHS Markit just released its Flash U.S. Composite PMI under the title: “May sees further steep fall in output amid COVID-19 crisis”

Chris Williamson, Chief Business Economist at IHS Markit, commented: “The severe drop in business activity in May comes on the heels of a record downturn in April, adding to signs that GDP is set to suffer an unprecedented decline in the second quarter. “We anticipate that GDP will decline at an annualized rate of around 37 percent in the second quarter, and it will take the economy two years to regain the pre-pandemic peak”.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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HansParisis
President Donald Trump seems to be trying to find a balance keeping the trade deal with China alongside enough anti-China rhetoric to keep his supporters happy. That is a delicate balancing act, which will require nuanced and diplomatic skills.
trump, bashing, china, trade
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2020-36-21
Thursday, 21 May 2020 12:36 PM
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