Trump says US doing well in trade negotiations, BofA-ML sees 'more pain'
America is doing well in its negotiations with the People's Republic of China and has nothing to gain by waiting until the next elections, the US President said on Tuesday.
As markets reopened after the long Labor Day weekend, Donald Trump said in posts on his personal account on Twitter that: "We are doing very well in our negotiations with China.
"While I am sure they would love to be dealing with a new administration so they could continue their practice of “ripoff USA”($600 B/year),16 months PLUS is a long time to be haemorrhaging jobs and companies on a long-shot [...]
"And then, think what happens to China when I win. Deal would get MUCH TOUGHER! In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!"
Roughly an hour earlier, China's vice premier, Liu He, had reportedly said that China "firmly opposed" the trade war and that he hoped that the two sides would seek common ground while setting aside their differences and appropriately resolve the issues on the basis of equality and mutual respect.
But amid the latest headlines, analysts at Bank of America-Merrill Lynch said that the "growing negotiating gap, a lack of trust, and a lack of "pain" all argued for a further escalation in the trade war.
However, while they also anticipated that both of the latest tranches of US trade tariffs would be enacted 'on schedule', they saw a trade truce materialising near the time of the next US elections on 3 November, 2016, preceded by a prolonged pause, albeit amid "continued tough rhetoric and behind-the-scenes action by the US Commerce Department, but no major new tariffs."
Regarding the first point, the investment bank pointed out how while Beijing was asking for a full reversal of tariffs, the Trump administration was pushing for just a partial pullback from an increasing baseline level of tariffs.
As for the lack of trust, small Chinese retaliations had been met with successively bigger and quicker responses from the White House so that now authorities in Beijing were beginning to come around to the idea that "an acceptable deal may not be possible".
"The fact that the two sides can't even agree whether there have been phone calls suggests an extreme disconnect. The gap between the two sides in terms of "trust" is even wider than the gap in numbers," they added.
And for all the growing talk of a recession in the US, the hard data remained "healthy" - especially the jobs and consumer markets - and unlike in 2018, the Fed was now easing policy, not tightening.
Complicating matters further still were the 'tech war' and "other complicating conflicts" including over North Korea, Taiwan, the South China Sea and Iran.
Finally, economic data so far appeared to indicate that Washington had yet to achieve its two goals of reducing the trade deficit and increasing factory jobs, with the bilateral trade deficit with China and that for auto trade both still widening.
"We expect the trade-war-induced global manufacturing recession to continue to worsen, weakening US job growth further. Ironically, the net impact of the trade war is to reduce US manufacturing employment."