US stock markets did little on Friday, while investors waited in vain for word on ongoing trade talks with China’s special envoy Liu He. Mixed signals came overnight when China denied reports that it had offered to buy down the US$200 billion worth of the bilateral trade deficit, a demand that experts said wasn’t even theoretically feasible.
At the same time, Beijing not only dropped an anti-dumping investigation into US sorghum, but also approved the US$18 billion sale of Toshiba’s chip unit to US private equity firm Bain Capital. Approval in China was the last hurdle in Bain’s year-long bid.
The developments come after president Trump signaled this week via twitter that a move was in the works to help Chinese telecoms giant ZTE get back into business, following a crippling ban on US chip sales to the firm.
On Friday, Trump shed more light on exactly why he might be so keen to strike a deal with China, speaking in his trademark free-form style at a White House summit on prison reform.
“The economy is doing fantastic. Even better than you think. The stock market is only being held back a little bit for one reason,” the president stressed, adding, “although it’s up almost 40% since election day.”
“They’re waiting to see the trade deals,” Trump said in an apparent reference to investor sentiment. “I can tell you they will be great trade deals. It will be great for our country. Our country has been ripped off long enough,” he continued, before assuring that “we are making great deals.”
Trump has long touted the stellar performance of the stock market – at virtually every speaking appearance as he did on Friday – as one of his crowning achievements thus far as president. The credit he takes for the stock market performance is accompanied by his pride in the ever-shrinking unemployment rate.
Not only have Trump’s harsh tariff proposals dampened investor sentiment, but studies on the impact of the import taxes, should they actually go into effect, reveal that they could cost the country tens of thousands of jobs. One study, conducted by the conservative-leaning Tax Foundation following Trump’s proposal to slap tariffs on US$150 billion of Chinese imports, found that it would cost the US 79,000 full-time equivalent jobs.
With the tariffs initially expected to go into effect as soon as June, the clock is ticking. While the Trump administration could delay imposing the duties, as they have for tariffs on metals from a host of countries, there is another reason for Trump to restore confidence in markets and allay fears among industries that need to plan ahead, such as agriculture: midterm elections.
At a campaign style rally in April, Trump warned supporters that if the Republican Party should lose their majority in the House of Representatives, Democratic leaders will seek impeachment.
“We have to keep the House because if we listen to Maxine Waters, she’s going around saying, ‘We will impeach him, we will impeach him’,” he said.
While the conventional wisdom says that voters favor having a divided government – often handing the president’s opposition party a majority in congress – this is appearing less and less inevitable for the upcoming election in November. The clearest reason for slipping Democratic poll numbers is the Republicans’ handling of the economy.
A recent Quiinnipiac poll found that 68% of respondents felt a trade war would be bad for the economy. “By any measure, a trade war with China is a terrible idea and there is no ambivalence. Americans, young, old, Republican and Democrat, say, back off or it will hurt the economy,” said Tim Malloy, assistant director of the Quinnipiac University Poll. 78% of respondents said their financial situation was either “good” or “excellent.”
The study also found that, overall, 54% of voters gave Trump credit for the state of the economy, versus 35% who felt Obama could take credit. Voters – and economists – overwhelmingly feel a trade war would harm the economy. Considering that, and the possibility that Trump’s party could buck the trend of losing control of Congress, one might take the president at his word. As he said Friday, “we are making great deals.”