Last Thursday, President Donald Trump held the first meeting about the trade deficit with China. The parties in attendance could not come to any sort of agreement, and each party even made independent statements at the closing of the meeting.
After the meeting, a protocol was finalized to allow the U.S. to ship rice to China, as China’s rice imports have increased dramatically over the last decade. However, the U.S. and China are going to have to agree on much more than these tiny deals in order to make any sort of difference in the trade deficit.
The U.S. doesn’t have much leverage when it comes to international trade relations with China. In addition to the 309 billion dollars we lost to China last year, this year we now lose approximately 30 billion to them each month. China is also the number one producer of gold in the world. It has continued to increase its gold reserves since 2014. The most recent increase on gold reserves seems to be a strategic measure to back up its economy after the yuan depreciated in 2016.
The only thing the U.S. and Chinese governments seem to be in agreement about is reducing the trade deficit and mutual interest in each other’s prosperity, and have only recently made miniscule agreements. Our trade relationship with China is complicated, especially when multinational American companies in China would lose money if we imposed tariffs on imports.
At the same time, tensions are rising between the U.S. and China after a sanction last month to restrict a Chinese bank from doing business with North Korea, as well as the Trump administration weighing the decision to cut steel imports. North Korea grew last year the most in 16 years, even under sanctions, so any sanctions the Trump administration makes against North Korea probably won’t make much difference.
When the U.S. administration is slow on making decisions on internal issues such as the delay on passing a new healthcare bill, you have to wonder if they’ll ever come to a decision on passing any major trade deals. The Trump administration has the lowest rating in the first six months of any president in the past 70 years. As the ability of the administration to make decisions always affects the dollar, will the stock market be able to survive this and go higher in the second half?