President Trump tweeted out an optimistic update early Tuesday after two days of U.S.-China trade talks in Beijing, lifting the Dow Jones and broader stock market. Dow components with big exposure to China, including Boeing (BA), Caterpillar (CAT) and Apple (AAPL), were among the solid gainers. The negotiations to avert an escalation of the China trade war, with tariffs on $200 billion worth of Chinese imports set to jump from 10% to 25% on March 2, come at a pretty good time for China.
XAfter a trip by the broad stock market into bear market territory last month, Trump seems to understand that continuing or escalating his China trade war could dismantle the economic achievements he hopes to run on in 2020.
"Talks with China are going very well!" Trump tweeted.
In early trade on Monday's stock market, the Dow, S&P 500 and Nasdaq all rose about 1%, but pared gains. Boeing stock and Caterpillar rose nearly 2%, while battered Apple stock gained almost 1%.
Last Wednesday's huge Apple sales warning, which tanked Apple stock and sent the Dow Jones diving 660 points on Thursday, was made in China. Earlier that day, Trump had blamed the woeful December for the Dow Jones and broader stock market on a "glitch." He said the damage would be recouped "once we settle trade issues and a couple of other things happen."
Slowing Growth Is Key To China Trade Talks
China sorely needs a trade deal to combat the deepening economic slowdown that partly explains Apple's gaping revenue hole. Beijing also fears losing access to key American technologies in a setback to its own global technological leadership ambitions.
While the Dow Jones and stock market rally confirmed an uptrend Friday, according to IBD's The Big Picture, the U.S. economy already appears headed for a major slowdown this year. The boost from tax cuts and spending stimulus will fade by the middle of the year, and monetary policy is no longer a tailwind. Ongoing uncertainty due to trade could roil financial markets and turn a slowdown into something more pronounced.
Top White House economist Kevin Hassett said last week that Apple will hardly be the only victim of China's economic slowdown. "There are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded."
Trump No Longer So Eager For China Trade War
Trump is no longer feeling as emboldened as he was back in August. Back then he tweeted, "Tariffs are working far better than anyone ever anticipated." At the time, Trump boasted that while China's stock market had been sinking, "Our market is stronger than ever."
JPMorgan analysts wrote in September that the strong U.S. economy and stock market might "embolden the president on all geopolitical fronts" and create risk of "a major miscalculation."
Trump Touts China Trade Talks 'Big Progress'
But now Trump is sounding much more conciliatory. In a Dec. 29 tweet after a phone call with Xi, Trump overflowed with optimism: "Deal is moving along very well. If made, it will be very comprehensive, covering all subjects, areas and points of dispute. Big progress being made!"
Trump almost settled for a modest China trade war win in May that would have had Beijing buy an extra $70 billion in U.S. goods over several years. Xi may be willing to stretch a little further to make Trump tariffs disappear.
Yet Robert Lighthizer, Trump's top trade negotiator, is reportedly underwhelmed by Beijing's commitments to seal a China trade deal. He reportedly thinks that more Trump tariffs are needed to get China to do more than buy more soybeans and make empty promises to stop requiring U.S. companies to hand over intellectual property to access the Chinese market.
Lighthizer is focused on extracting the best China trade deal. Trump has to worry about the impact for the Dow Jones, broader economy and his 2020 re-election bid.
China Trade War: Hot Now, Cold Long Term
Since neither Xi nor Trump can afford to escalate the China trade war, the biggest question going forward seems to be what U.S.-China trade relations will look like after a China trade deal. Will Trump really be able to give China a clean slate when it comes to trade? Or will investment restrictions and export controls keep tensions bubbling?
Even with a China trade deal, the global economy — especially high-tech sectors — could split in two from a technological U.S.-China cold war. The U.S. wants to keep China's Huawei out of 5G next-generation mobile networks, citing security risks. U.S. allies are imposing bans or severely restricting the use of Huawei gear. China, through funding Belt and Road infrastructure projects in Asia, the Middle East and Africa, is working to expand its sphere of influence.
Given the ever-growing geopolitical rivalry, a China trade deal would amount to a cease-fire, but probably not a lasting truce. That would avert a near-term blow to a shaky global economy. But it would leave a cloud hanging over Apple and other U.S. companies that depend on China as a manufacturing base and key global market.
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The post Trump Stays Bullish On China Trade War Talks, Fueling Dow Jones Rally appeared first on Investor's Business Daily.
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