Cooling the Waters on a China Trade War

The big news last week was all the big news last week. Yet despite Syrian bombings and the bomb that was a bad March jobs report, stocks managed to fight through the developments virtually unscathed.

Now, because of the more-salacious headline news on airstrikes and jobs disappointments, there was less attention paid to what will likely be a far greater influence on markets and the economy in the months and years to come.

That was, the first official meeting between President Trump and Chinese President Xi Jinping. It took place over the weekend at Mr. Trump’s estate in Palm Beach, Fla.

Why was that meeting so important?

Well, because the leaders took steps to, as the Financial Times described it, "avert an all-out trade war between the world’s two largest economies."

Recall that during the campaign, candidate Trump used China as a virtual punching bag. He accused the country and its leaders of currency manipulation, unfair trade practices and other trade-war behavior that takes advantage of the U.S.

That message resonated with enough people to turn candidate Trump into President Trump. But now the president has taken a more-conciliatory — shall we say, "mainstream" — tack on the hot-button issue of trade.

The details are yet to be issued. But here’s the big picture …

The U.S. and China will enter into a 100-day plan that’s likely to include Chinese concessions on agricultural imports and foreign investment in its financial sector.

U.S. Secretary of Commerce Wilbur Ross went to the financial media over the weekend to discuss what he expects from China.

In an interview with the grande dame of financial TV journalism, Maria Bartiromo, Ross said:

"If we don’t get some tangible results within the first 100 days, I think we’ll have to examine whether it’s worthwhile continuing them."

That sounds like a not-so-thinly veiled threat to me.

But Ross did indicate that the two sides made actual progress on the trade issue.

"The Chinese … came very well-prepared and there were people at the right levels. So it was not just a for-show meeting. It was a serious meeting — both in terms of who attended and the content," said Ross.

Ross, along with Treasury Secretary Steven Mnuchin, said Friday that Chinese officials were in agreement about the need for a more-balanced trade relationship.

Yet that agreement isn’t just based on what the U.S. wants.

The Chinese also are concerned for themselves and their own economic situation. They are rightfully concerned about financial imbalances that can lead to too much investment in certain sectors (e.g., real estate).

Too many dollars artificially building up the price of a segment is a recipe for a busted bubble. The Chinese know that, and they don’t want it.

Per the FT:

"They [China] expressed an interest in reducing their net trade balance because of the impact it’s having on money supply and inflation," Mr. Ross said. "That’s the first time I’ve heard them say that in a bilateral context."

I think the bottom-line takeaway here from last week’s Trump/Xi talks is that the two sides want to try (at least publicly) to play nice. And to reach some common ground on a sore subject that’s vexed the two nations for some time.

This 100-day deal is the first start to what needs to be a longer, more-detailed conversation. Still, we can probably remain optimistic for at least the next several months.

I think we owe the two sides at least that.

Then if they disappoint, well, they will have had their chance.

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What do you think about the initial round of trade talks between the U.S. and China? Are you encouraged, or do you remain skeptical? I want to know what you think, so if you have a comment or question about today’s Afternoon Edition topic, or any of the topics we cover, just leave me a comment on our website or send me an e-mail.

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Energy stocks led the market higher today, spurred by crude oil gaining for a fifth day in row. Continued geopolitical uncertainty after last week’s U.S. missile strike on a Syrian airbase was part of it. And now in Libya, a group is blocking a pipeline in its El Sharara oilfield. West Texas Intermediate crude climbed 1.6% today in response. Meanwhile, the S&P 500 added just about a point and a half, or 0.1%.

• After Thursday’s missile strike, Raytheon (RTN) — maker of those 59 Tomahawks, which were worth about $1 million apiece — gained 1.5% Friday. However, the shares gave back most of those gains in Monday’s session. RTN fell 1.2%.

• Family films dominated the weekend box office: Those seeking escape from world events found it with "The Boss Baby," (NBCUniversal/Comcast) "Beauty and the Beast" (Disney) and "The Smurfs" (Sony), which ranked No. 1, 2 and 3, respectively.

• Fifth day of delays for Delta (DAL): The company has canceled thousands of flights since Wednesday, after severe storms hit near the carrier’s Atlanta hub. The stock has fallen 3% since April 4.

• But United Continental’s (UAL) latest actions aren’t ‘flying’: A doctor was filmed being dragged from his seat on an overbooked flight from Chicago to Louisville. Security removed him after a "seat lottery" bumped him (and three others) so UAL could put employees on the flight. Shares gained 0.9% today but have fallen by almost that much in the after-market.

• Tesla (TSLA) is now the most-valuable U.S. automaker. Elon Musk’s electric-car empire has been around since 2003 and boasts a market cap of almost $52 billion. This bumps General Motors (GM) into second place and Ford (F) into third. (GM was founded in 1908 and Ford in 1903.) TSLA shares gained 3.3% today.

• Footwear of the future: Adidas (ADDYY) will mass-produce a 3D-printed shoe, the Futurecraft 4D, that’s set to hit the market late next year.

• A trio of bank earnings arrive Thursday: Before the opening bell, JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC) will tell us how they did last quarter. Last week, in his annual letter to shareholders, Jamie Dimon let investors know that 2016 was a breakthrough year for JPM. And Wells was in the news today for wanting to "claw back" some $75 million from two former executives in connection with its fraudulent-account scandal.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “Cooling the Waters on a China Trade War”

  1. Xi agreed to import American beef into China for the first time in 14 years. That may help the balance of payments a bit, but look for beef to become a lot more expensive for Americans, as a result.

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