Trump: China's economy taking hits on trade war -- so a deal is coming soon

The presidential Twitter account had been uncharacteristically silent this morning as ABC’s interview with Michael Cohen dominated the headlines. Donald Trump’s first entry didn’t come until almost lunchtime, and even then it ignored Cohen altogether. Instead, Trump teased out a “very comprehensive deal” with China, leveraging off of bad news out of Beijing:


Trump’s not wrong about China’s economy. Even by their official figures, which might not accurately reflect reality in the communist-run country, they’ve missed growth expectations and may be heading into real trouble:

China’s November retail sales grew at their weakest pace since 2003 and industrial output rose the least in nearly three years as the economy lost further momentum, heaping pressure on Beijing to defuse its trade dispute with the United States.

The world’s second-largest economy has been losing momentum in recent quarters as a multi-year government campaign to curb shadow lending put increasing financial strains on companies in a blow to production and investment.

The stresses on broad activity have been compounded by a sharp escalation in China’s trade row with the United States, which has threatened to fracture global supply chains, chill investment, exports and growth.

The slowdown in Chinese industries and the trade tensions have started to weigh on consumer sentiment, tapping the brakes on retail sales. Big-ticket items have been the first to be hit, with auto sales declining since May.

The markets have noticed China’s sluggishness, too. CNBC reports this morning that the Dow Jones has continued its December swoon based on China’s “ugly” economic data:


China on Friday reported industrial output and retail sales growth for the month of November that missed expectations, according to data from the National Bureau of Statistics, as the world’s second-largest economy started to show signs of slowing amid a bitter trade dispute with the U.S.

Industrial output in November grew 5.4 percent from a year ago — the slowest pace in almost three years as it matched the rate of growth seen in January to February 2016, according to Reuters records.

The growth in industrial production was lower than the 5.9 percent analysts in a Reuters poll had predicted.

The above report also notes a suspension of a previous tariff hike on US-made autos. US News and World Report has more on that change, which takes effect on January 1:

China has announced a temporary suspension of tariff hikes on U.S. cars, trucks and auto parts amid a bitter trade war between the two nations that has threatened to stifle global economic growth.

Under the suspension, Beijing will halt a 25 percent import charge on $66 billion of cars and trucks and a 5 percent charge on $60 billion of auto parts for 90 days. It takes effect Jan. 1, according to a statement from the tax agency on Friday.

The tariff rate will drop back down to 15% on cars when the change takes place and will remain at that level through the negotiations with the US. That certainly looks like China is working to cut a deal with the US, as Trump stated on Twitter. That doesn’t necessarily mean that a deal is coming soon, as he promises, but they do seem a little more eager than before to cut a deal, and to be seen as wanting to cut a deal.


Goldman Sachs offered a much less optimistic take yesterday, even with the change on auto tariffs:

Goldman Sachs economists said it’s more likely than not that U.S.-China trade negotiators will not reach a deal in time to head off higher tariffs on March 1, and importers could rush to order their goods in January and February ahead of the deadline.

President Donald Trump and Chinese President Xi Jinping agreed to hold off on further tariffs until March 1 so the two sides could negotiate a trade agreement. China also agreed to remove new auto tariffs on U.S. imports, and Washington reported that Beijing is fulfilling another promise to purchase American soybeans, with its first significant order in six months, amounting to 1.13 million tons.

But they have to show some progress by the March 1 deadline in order to delay further action. “While we think it is a close call, we believe it is slightly more likely that negotiations will fall short of what is necessary for a further delay,” wrote the Goldman economists.

The pressure on Xi Jinping might not be as much as Trump hopes. China’s economy is still expanding, at least officially, so they’re only losing potential growth at the moment. Xi can withstand the political pressure of a slowing economy in a dictatorial system better than Trump can in a democratic republic. If Xi wants, he can outwait Trump until the next elections and hope he’s dealing with a new president with less invested in protectionist promises.


If Trump’s not bluffing on his boast this morning, though, he will have vindicated his protectionist instincts — and perhaps set the tone for all future trade negotiations. Xi likely understands that too, however.

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David Strom 3:00 PM | May 20, 2024