Echler Solomon Feng

esfpm.com
Jan 18, 2020

Off Tangent: Smoke and Mirrors

Last week, US markets cheered, soared to new time highs and celebrated President Donald Trump and Liu He’s signing of the much-awaited Phase One of its Trade Deal – putting a cease-fire to the 19-month long US-China Trade dispute and further boosting the stock markets to new record highs.

To cap the highlights of this event:

  • Trump describes Phase One as a monumental achievement of his administration – a historic and landmark agreement and a momentous step towards fair and reciprocal trade with China
  • The deal includes agreements on intellectual, property protection, forced technology transfer, and currency rules
  • It also contains a significant pledge from China to buy US$200 Billion worth of exports over two years with a considerable focus on US Agricultural products
  • Remaining in effect are the 25% tariffs on some US$250 Billion worth of Chinese imports

A lot has been discussed in the news of Trump’s triumph in Phase One. We now flip the coin and assess what this Phase One means to China.

At first glance, it now looks like Chinas commitment to settle far outweighs the US. So, we now ask, what’s in it for China?

For some reason, China looked like it needed to sign this Trade Deal to stop the routine escalation on tariffs. China is already experiencing an economic slowdown, and this has been dragging its exports. Also, even as China has intimated to change its policies on intellectual property, technology transfer and access to financial services – it made no indication whatsoever to change anything on the real issue – state subsidies. State subsidies have over the years, given an unfair disadvantage as the Chinese government interfered in the agricultural sector, compared to what the US has done to American farmers.

But for Joe Biden, he blasted Trump’s Phase One as being Pro-China. The former Vice President said in a statement that “China is the Big Winner of Trump’s Phase One trade deal with Beijing… True to form, Trump is getting precious little in return for the significant pain and uncertainty he has imposed on our economy, farmers and workers.”

Off Tangent: Reporters and Journalists who were present at the trade ceremony observed, however, that Trump is drumming this trade event as something bigger than what it seems and diverts all attention to Phase One – ergo does not entertain questions on the Iran situation or his impending impeachment trial. One journalist observed and was quoted as saying,” Theirs an obvious hoax going over there.” and Trump seems to be dragging it out. It is all smokes and mirrors as he diverts attention from the complexities of the Middle East generally and in particular, the Iran situation; the impeachment resolution is just the icing on the cake.

Rest assured that the current market reaction is also part of the decoy that the economy is better under Trump, and let's all wait until the dust settles.

Remember, November 2020. Election Day.