Trump, Tweets & Tariffs

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Nadero Wealth Management

Here we go again, Trump goes to Twitter and once more raises the trade war ante by threatening more tariffs. Just when we thought that China-US trade relations were entering a virtuous circle after the last several months of acrimony; we are caught by a sudden and unpleasant surprise over threatening tweets indicating Trump would raise tariffs by as much as 25% on some $200 Billion worth of Made in China goods – this, up from 10%. The pressure is now with China’s chief trade negotiator, Liu He to come up with a deal that Trump cannot refuse.

It is probably temporary panic mode for global markets right now while raising tariffs might cause a pandemonium of sorts, and that tweet surely had markets tumbling as a knee jerk reaction that dark times are coming. Yet we know Trump too well and have seen this all before. In a situation wherein it seems that he is not in control, he turns to Twitter and plays the tough guy. Moreover, every time he plays that role of commander in control – his US public base cheers, and this is best seen with equities markets making their triumphant rallies.

What we see is that a deal is going to be made. But one without teeth – and no doubt probably meaningless in the long term. We think this trade war rhetoric is beyond Trump and will persist for years and years to come in fits & starts. It does not stop and end with Trump. It’s a long game and more complex than just simply protecting manufacturing jobs or reducing trade gaps.

Having said that, it is indeed inevitable for the US and China to collide in some form or another, irrespective of whatever happens with the trade deal under the Trump administration. In the race to who stands as the world’s superpower –runner up means nothing. America will play its terms and games to stay on top. But China will play its economic cards to snatch that position from the US. And by the looks of it, we see Russia and much of the Developing World on the side of China with its lend and loan deals.

This trade war is more than Trump with his tweets or with his threats of tariffs. It is all about geopolitical power. Trump wants to knock down China at any opportunity that he can get. China, on the other hand, knows very well that America needs its cheap goods and services. The pressure is on for both parties until someone rolls over.

China is already executing a brilliant strategy to win this war. It is making friends with its Belt and Road Initiative. Russia, New Zealand, Italy, the EU, and the whole of Africa have already shaken hands with China. That leaves US influence diminishing by the day. For obvious reasons, tensions will further escalate, and nations will have to align with the strongest.

The US is losing its grip. All these tweets and tariffs threats from Trump are just for the show, to perpetuate an illusion that America is still calling the shots and in control.

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