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Market Selloff and US-China Relations

"Tariffs Might Be An Effective Negotiation Tool" Lloyd Blankfein

In anticipation of a trade deal, many investors bought global equity and US and Japanese equity in particular. However, it is now transparently obvious that even a watered-down Phase One Trade Deal will not take place in the coming weeks or possibly months. US President Donald Trump is now signaling to the Chinese that he will gladly allow the decision on trade to take place after the 2020 election. This shocking comment points to confidence that the US economy will be weak and more importantly, with cleaver political moves by the White House, the US-China Trade Deal not resulting in a short-term solution actually points to more Fed action. In short, if the trade deal does not take place in the next 9 months, Trump will be the winner as he will enjoy an economy supported by Fed rate reductions. There is also a China component in which President Xi of China might come under internal pressure as he is being viewed by some groups within the Communist Party as someone who cannot get things done. And this takes place while some of the hardliners are saying that Xi Jinping should not give up an inch as China should not suffer another 200 years of humiliation.

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