By Clyde Russell
LAUNCESTON, Australia- Since US President Donald Trump launched his trade dispute with China one of the best questions to ask in order to assess the current state of the process is who, right now, is more desperate to do a deal.
For most of 18 months or so since the tit-for-tat tariffs began the conventional thinking has been Beijing is more keen to finalize an agreement, given the obvious slowing of growth in the world’s second-biggest economy.
However, the abrupt swing in the Purchasing Managers’ Indexes for both China and the United States, coupled with mounting domestic political pressure on Trump as he heads into his re-election campaign, may have altered the dynamic.
China’s official PMI unexpectedly returned to positive territory in November, rising to 50.2, the highest since March and moving above the 50-point level that separates expansion from contraction.
However, the US PMI went the other way, staying in negative territory for a fourth month, slipping to 48.1 in November, down from 48.3 in October.
Of course, one month’s recovery in the Chinese PMI doesn’t yet confirm that the worst is past, but it perhaps does show that the stimulus Beijing has injected into the economy in the form of monetary loosening and infrastructure spending may be starting to filter through to real activity.
Similarly, the weakness in the US PMI doesn’t necessarily mean the world’s biggest economy is irrevocably on the path to recession, but it does raise concerns for Trump given his re-election hopes are likely to be centered on winning states dependent on manufacturing jobs.
Does this mean that the so-called Phase 1 deal is likely to become reality, especially with a Dec. 15 deadline looming for the latest round of US tariff hikes on Chinese goods?
Part of the problem with the trade dispute so far is that there has been no shortage of views expressed by the US side, either through Trump’s Twitter feed, comments by his officials or off-the-record briefings.
The Chinese side has generally been more reticent to talk publicly, but its views tend to filter out through friendly media outlets.
What has become clearer in recent months is that the Trump administration seems increasingly keen to get a deal signed and delivered, even if the agreement falls way short of the initial aims when the trade dispute was launched.
For its part Beijing also seems keen to ink a deal, but only if the tariffs imposed on much of its exports to the United States are removed, or at least rolled back.
It’s possible the two sides can reach an initial agreement, but it seems increasingly likely that Trump won’t get nearly as much as he wants, and the political spin machine will have to go into overdrive to portray any agreement as a victory.
Much of the focus has been on China increasing its purchases of US commodities as part of any deal, especially agricultural products such as soybeans.
Trump has touted a figure of $50 billion in Chinese purchases of agricultural products, a figure that appears pure fantasy given that the trade was worth about $23 billion a year before the tariff war started.
About half of China’s imports of US agricultural products prior to the trade dispute were made up of soybeans, and even if Beijing mandated its purchasers to switch back to buying US supplies, it’s doubtful they could even reach the prior volumes.
That’s because China’s pig herd has shrunk with the ongoing problems of African swine fever, meaning smaller volumes of soybeans are needed as feed. – Reuters