Amid high-level trade talks between China and the US, Trade Secretary Mnuchin announced that the trade war is “on hold.”
He later confirmed that the US has halted implementation of the tariffs previously announced by President Trump. The Chinese announced first that they were dropping their new tariff on US agricultural products, then that they were cutting their tariffs on US cars from 25% to 15%.
The markets seemed to like the news. Why wouldn’t they? Trade wars have a long history of making both sides poorer.
But wait a minute… China’s new tariff hadn’t been implemented yet—so did they really give anything up?
And could the Big Three US automakers really compete with cheaper Chinese manufacturers, even if those tariffs were dropped to zero?
What’s more, the stated goal of reducing the US trade deficit with China by $200 billion is … ah … exceptionally aggressive. It’s more than half of last year’s entire trade deficit.
It’s not just the size of the target that concerns me, but the fact that neither government can simply decide what the deficit will be.
China has more power to order Chinese companies (especially state-run companies) to buy more US good and services, but even that has its limits. The US, of course, can’t order US companies to sell more to China. There’s serious doubt about how much more they are able to produce for the Chinese market, even if there were enough demand.
I’m not trying to rain on the parade. I’m just reminding investors that the devil is in the details. Perhaps it’s an army of demons on a vast and complicated field of countless details.
Trump himself has just said that the deal needs a new structure.
Let’s keep the champagne on ice a little longer, until we’re sure there’s good news in fact, and not just in words.
