By Steve Sjuggerud
Who has the best negotiating position in the trade war?
If you ask most Americans, they’d say Trump. But they’re dead wrong…
This is typical, of course. What folks in the U.S. believe about China is usually way off-base. And as I explained last Friday, this difference between perception and reality is why I’m so excited about Chinese stocks today.
The trade war is a great example. Folks believe the U.S. has the upper hand… They believe we hold all the cards. But boy, is that a mistake.
A closer look reveals something quite different. And it tells me that Trump will do just about anything to end the trade war.
Let me explain…
The trade war – which the world thought was coming to an end – is now back on.
Earlier this month, the U.S. and China were set to sign a major trade deal. But China backed out at the last minute. It said the terms of the deal were no longer acceptable.
As a result, the U.S. raised tariffs on $200 billion in Chinese goods three weeks ago. And the U.S. government has since released a list of another $300 billion in Chinese goods that could see new tariffs.
The Chinese have already announced plans to retaliate with tariffs on U.S. goods in June – $60 billion worth. So it seems we’re back to square one.
Of course, since the entire world thought the deal was as good as final, both the U.S. and Chinese stock markets have taken a beating.
The question everyone’s asking now is, “What happens next?”
To answer that, we need to examine who’s in the position of power right now. And the answer isn’t what most folks believe.
Before I explain this, I urge you not to get mad at me for what I’m about to say. I’m not being un-American. It’s simply the most logical answer in front of us today.
- What does President Donald Trump want most in this world? The answer is simple: He wants to maintain his perch at the top – to get re-elected.
- Which U.S. states does he need to win to get re-elected? This answer is simple, too: What he needs are the states that could go either way… basically, the farming states in the Midwest.
- What could the Chinese do to really punish Trump and keep him from getting what he wants?
Yet again, this answer is simple: Punish the voters in the states that Trump needs to win the 2020 election.
Simply put, by continuing to buy fewer and fewer U.S. crops, China hits Trump where it hurts the most… votes.
This idea has major implications. Most of all, it means that as we near the election, Trump moves from a position of power to a position of weakness in trade negotiations.
Chinese President Xi Jinping has no term limit. He’s in power for life, theoretically. And that means he can stomach short-term pain to win the long-term war.
That’s not true for Trump. So as time goes on, Trump will likely do anything necessary to end the trade war and win the votes he needs most.
Let me be clear: We can’t know how long it will take. But a resolution to these tensions seems almost certain to me. It’s a necessity not just for the U.S. – but for the man calling the shots.
That’s why I view the trade war as a short-term problem. And it’s why I continue to be incredibly bullish on Chinese stocks in the coming years.