American Consequences - September 2018



THE MARKETS TWIST ON TRADE TALKS The trade stand-off took some new twists and turns to begin September. We exited August with President Donald Trump stating the U.S. was ready to implement the next round of tariffs on Chinese imports as soon as possible. He said the European Union’s offer for zero tariffs on autos wasn’t good enough, comparing the EU’s treatment of the U.S. to China. He also stated he’s considering leaving the World Trade Organization (WTO) and made off- the-record comments that he would not compromise in talks with Canada. This, in turn, threw the trade picture into turmoil and rallied the dollar. Compounding matters, Trump announced the U.S. was prepared to levy another $267 billion in trade tariffs on China. But this past week, the tone took a turn for the better... The EU’s chief negotiator, Cecilia Malmstrom, met with the U.S. Trade Representative, Robert Lighthizer. Following the meeting, Lighthizer’s officer said that a partial trade agreement was possible by early November. A full trade deal could still be months (or more) away, but this shows signs of progress.

Freeland said talks continued to make good progress while Trump stated negotiations with Canada were coming along “very well.” But Canada offered limited access to dairy markets as a concession to rework NAFTA. And then there’s China. The WTO said China made a request to impose $7 billion worth of trade sanctions on the U.S. due to non- compliance with a 2016 ruling China won regarding “dumping duties,” a method of preventing China from pricing exports in a way that undercuts the U.S. markets. China claims it has cost them $7 billion annually. Not to be outdone, the U.S. said it was considering sanctions against Chinese officials for human rights violations, a first for the White House. On one hand, negotiations appear to be moving back in the direction the market is hoping. This is in addition to the EU and the U.K. reportedly moving closer to a Brexit deal. If all this were to play out, it would take some of the air out of the dollar and boost global markets. The markets came to view this as a negotiating tactic.

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On the other hand, if the market is going to break through the 3,000 level to the upside, we need to see real progress on trade negotiations with China... not just threats.

Meanwhile, Canada’s Foreign Minister, Chrystia Freeland, was back in the Nation’s Capital to continue NAFTA negotiations.

12 September 2018

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