There's a new wrinkle in the trade talks -- and I think it's a wrinkle that's behind the sudden fear of still one more breakdown in the negotiations with China.
The new wrinkle? The possibility that the President so mistrusts the Chinese that he would just as soon keep these current tariffs on, regardless of any deal the Chinese want. It almost seems to be a deal breaker on the face of it, but it's one that Trump may be willing to risk, because he hasn't seen any signs that the Chinese are serious about changing their ways of doing business with our nation.
Keeping the tariffs on and then taking them off if China does change is a lot better, perhaps, than taking them off and putting them back on if they don't change, especially because U.S.-based companies that do business in China are frantically trying to get away from the PRC as fast as they can.
I think the Chinese and the President are very much at cross purposes for the moment. The Chinese keep talking about wanting to buy things from us to improve the trade deficit.
I don't think the President, however, is focused on more purchases. He's focused on intellectual property theft, on Chinese dumping via state-owned businesses, and on the Chinese trying to project military and industrial power globally against our wishes.
The Chinese are talking about not buying a lot of Boeing (BA) planes because of the 737 Max issue.
The President is talking about repudiating the 2025 Made in China policy that needs to steal U.S. intellectual property to win.
The Chinese are talking about soybeans.
The President is talking about no longer doing as much business in China, so the Chinese can't keep subsidizing their losing businesses in a way that takes away our jobs here.
In other words, they are really not speaking the same language right now -- hence the chatter about another breakdown.
Now after listening to FedEx (FDX) CEO Fred Smith Tuesday night talk about how China's just too big a manufacturing country to expect that U.S. companies can transition out of China in any meaningful way, I can see how the Chinese will want to play the long game there.
But what I don't think the Chinese can do is afford to have a further ratcheting up of the tariffs from these levels, even as I think the President believes that the U.S. has not felt the pain the way the Chinese have from our actions.
In truth, there are only a handful of companies that have yet to see their bottom lines hurt by the tariffs, FedEx being one of them.
But I believe that when word gets out about how serious the President is about NOT taking down the current tariffs, we are going to get another leg down if the Chinese don't at least start admitting that they have not been good actors on these larger issues.
Or, to put it another way, I still think there can be a trade deal, but it is going to be very difficult to be a big one if the President isn't going to take down all of the tariffs as a sign of good faith... because there seems to be very little good faith behind the scenes, given the President thinks the Chinese are hurting a lot more than we are -- so why not just wait them out.
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