Is Trump Negotiating from a Position of Weakness with China?
Long before he assumed office, Trump was staunchly against China’s dominance of global trade. His views became campaign rhetoric and that was eventually what swept him into the Oval Office. President Trump has been labeled ‘bombastic’, ‘unrefined’, and ‘uncouth’, but his doggedness is never in question. His career is a combination of victories snatched from the jaws of defeat, yet throughout every obstacle he negotiates, Trump remains afloat. Of course, it’s an entirely different ballgame as the President of the United States.
Trump’s actions are being investigated every step of the way. Democrats do not trust him and Republicans are wary of his apparent disregard for the norms of office. Trump has been quick in his attempts to retreat from Obama-era legislation. His first 100 days in office have been tarnished by an unfriendly media, and constant pushback from the GOP hardliners and Democrats. Now, Trump is facing the biggest diplomatic test of his presidency – a meeting with China.
Xi Jinping is arguably the world’s second most powerful man after Trump, although some would argue that title belongs to Vladimir Putin. Irrespective of this, the President has found himself in a somewhat weaker position with the US after he ditched the TPP agreement and in supporting Taiwan against China’s wishes. Another interesting development has taken place: China which was the one nation least concerned with climate change and globalization is now the poster child of these causes. Under Trump, the US is looking inward with its policy of America First and trade barriers and tariffs in place.
Plenty at Stake with China and the US
Trump has set a precedent with Japanese premier Shinzo Abe. The Japanese leader was treated extraordinarily well, and hosted at Mar-a-Lago to a lavish reception. We know that Merkel and May were given a much less swanky reception! The point being, Trump will want to impress Xi Jinping and anything less than what Shinzo Abe received will be deemed bad for business. There are several issues that the US will broach with China. These include North Korea and Trump’s assertion that the US may act unilaterally to stop the North Korean strongman.
And there is China’s territorial incursion into the South China Sea. But topping the agenda is the US trade deficit with China. In 2016 that figure topped $347 billion. China is unlikely to rattle North Korea’s feathers too much and so it will play a delay game with North Korea to keep the totalitarian regime in place. China is certainly emboldened by the failure of the TPP to include the US. Singapore is another hotbed issue for China and the US. The Chinese want to keep Singapore China-friendly and away from the US. Whether that will happen is anybody’s guess.
Markets are reacting as expected to the meeting and the likely aftermath: nervously. The USD has reversed and posted strong gains in recent days. However, the USDCNY pair remains locked at 6.8831 as the Chinese peg their currency against the greenback. The US dollar index, which gives an indication of FX performance against a basket of currencies is trading at 100.65, and rising.
This shows that there is a possible positive sentiment for the US dollar index heading into the meeting. Traders are using this knowledge to go long on dollar-denominated investments with traditional and contrarian investment options. For example, traders with CFD Trading knowledge are finding that it is beneficial to speculate on price movements of dollar-denominated assets such as gold, silver, crude oil and the like. Instead of taking ownership of these assets, traders are speculating on short-term price movements and profiting accordingly.
While many traders stick to the traditional investment options for long-term appreciation – such as a new gold IRA or a 401K – these are not necessarily ideal for conditions where there is short-term volatility. With China in Trump’s crosshairs, it’s difficult to know which way markets will move. If the meetings pan out negatively, gold stocks will rise alongside a surge in bullion. An amiable meeting will quell market concerns and lead to a rise in equities markets.