How many times have we read about market movements are inextricably linked to investor expectations for a resolution to the ongoing trade dispute between China and the U.S.? The underlying risk for the markets is that analysts and investors have been singing this same stale song for over the past eighteen months yet, no agreement appears in sight.
Current Market valuations, to some degree, are based on tenuous assumptions about the likelihood of China and the U.S. resolving their trade differences.
What investors and analysts fail to realize and factor into their sanguine prognostications, is that there are now structural considerations surrounding that dispute that are wholly unrelated to investors’ wishes for prolonging a ten-year bull marketer, nor the wishes of American businesses desire to continue doing business in China. President Trump, for national security reasons unforeseen and not appreciated by Wall Street analysts or some journalists, for whom ignorance is bliss, is playing hardball with the Chinese and will continue to do so.
Based on the failure of President Trump and Chinese President Xi to reach an accord during their most recent meeting, , it is now clear that the market has not accurately priced the status of the trade dispute that has been based on the wholly unfounded presumptions that President Trump would bend to pressure from the business community and try to make a deal with Premier Xi.
One wonders if analysts and sophisticated investors have taken the time to read abut China’s last minute reneging on previous commitments they made concerning terms and conditions the U.S. had said were non-negotiable. The Chinese feel that accepting these terms, that they had previously signaled were unobjectionable would make them lose face by the perception that they were being humbled before the Americans.
Perhaps the best way to describe the diminishing prospects for a trade accord Is to invoke Rudyard Kipling’s famous aphorism, “East is East, and West is West. And, never the twain shall meet.