US vs China: Unstoppable Force Vs Immovable Objection

Submitted by Michael Every of Rabobank,

Markets were rocked yesterday by further bad news on the trade front. Not only is the APEC venue not available for Trump and Xi to meet, but according to a news report senior Chinese officials have little faith in the US sticking to any deal, have literally no appetite for the large up-front agri purchases that the US is insisting on, and are refusing to contemplate any immediate start on a ‘phase 2’ deal without the States removing tariffs – which isn’t going to happen.

All in all one could almost make the argument that this is case of unstoppable force (the US) vs. unmoveable objection (China), and hence a real trade deal can’t be done. Of course, we have made exactly that projection since before the trade war even started. Indeed, we aren’t compelled to change that view despite both Larry Kudlow and Chinese officials scrambling to let the world press (meaning stock markets) know that the two sides are close to agreement, really.

Do they actually agree? Yes – on their irreconcilable differences. Now just isn’t the time to advertise that agreement to disagree too loudly: but supply chains will keep moving anyway. Consider that US Secretary of State Pompeo and Vice President Pence have both made clear from the US side that China must reform or decoupling, even if undesirable, looms: Pompeo openly talked about “confronting the Chinese Communist Party”. For its part, the Chinese Communist Party’s fourth plenum this week announced “national security” and “rising risks” were the immediate priority, not reforms of the economy.

Meanwhile, politics was again in force as the US House of Representatives officially voted to open impeachment procedures against Trump. From now on depositions will have to take place in public, and there will be a wider range of witnesses called, and far greater Republican involvement. As a result, expect the headlines to get even more colourful than they have been so far; expect nobody to emerge looking very good; and also expect formal impeachment in the House on strictly party lines, which opens up a trial in the Senate. However, don’t expect much focus on the substantive detail of the facts because this all about bare-knuckle politics, and the switchblade issue of quis custodiet iposos custodes; don’t expect the Republican-majority Senate will also impeach Trump to remove him from office, because while it’s possible it’s still the far less likely proposition; and don’t expect Trump won’t run for re-election in November 2020 anyway even if he is impeached or removed from office. Unstoppable forces are unstoppable, just as immovable objections are immovable.

Trump is also wasting no time getting involved in another foreign country, announcing that a BoJo – Farage electoral team-up in the UK would be “an unstoppable force”. Of course, it would make a huge difference to the Tories’ uncertain electoral prospects given the likely loss of some seats to the Remain Lib Dems and others to Scottish nationalists, and hence to what shape Brexit would then take. However, in what is going to be the most uncertain election in UK history there will be many who have an immovable objection to Trump saying what he did – and also that Labour leader Corbyn would be ”so bad for the UK.” It simply isn’t acceptable for foreign leaders to make comments about desired outcomes in other countries’ elections – except when it is the US, when the whole world joins in (which is allegedly why we are where we are on impeachment).

Note that special judgmental role is instead reserved for financial markets: where and while they still can, they get to show who they think would be “so bad” or “so good” for a country.