Chinese Negotiations
ALERT: I will be doing a @Livesquawk FOMC meeting preview on Wednesday May 7 at 16:45 BST/11:45 EST on X (Twitter). Tune in for my FOMC thoughts. I currently don’t expect them to say much, but I will probably have some detailed views later in the week.
I was a bit surprised at how aggressively we were rallying at the start of the week, as I cannot imagine people thought the economic data would turn that soon. I suppose maybe there was a tail risk of a low ISM print (from all the very low regional manufacturing surveys), but we had a larger selloff on Friday after payrolls. The high frequency employment data pointed to a firm payrolls, so I’m not sure what the bulls were expecting. The main logical explanation for the bigger-than-expected selloff Friday (above what would have been expected from a slightly firmer payroll) was probably from: (1) preparing for auctions this week, (2) equities rebounding, (3) preparation for a hawkish FOMC, and (4) news that the Chinese are thinking about calling us (maybe). It is this last item that I wanted to discuss this week.
It is clear that both the US and China are de-escalating, as we have reduced tariffs on a whole bunch of electronics and other Chinese products, and there were articles last week saying China has quietly removed tariffs on some US goods. The question is… why aren’t they talking yet? I thought the Chinese wanted some respect, the US to name a point person as well as identify what the US wanted with respect to fentanyl. I don’t see why the first two items should take long. I can see why the last item could be awkward as “fentanyl” was always a red herring (excuse) for Trump to legally impose tariffs on China (as well as Canada and Mexico). On the Chinese side, they seem to be taking their sweet time to respond. And so we still have no high-level call.
It seems like the US thinks they have the advantage in negotiations, and the Chinese seem to think they have the advantage. I suppose at a superficial level, the US importing $439B a year from China while China only imports $144B shows that the US has an edge - because the Chinese would “lose” more than the US in a trade war. This is how you come up with a “Concept of a Plan.”
The below is a list from Google AI of the top item categories that switch hands from China-US trade (in the order listed by Google), and my comments. I added “Dolls” as a category representing the many “cheap” items the US receives from China (see Temu and Amazon).
A few things should become obvious:
· When looking at the list of exports, China looks like an advanced economy and the US looks like some emerging market country. How are almost all of their top export categories electronics/equipment and half of our items are agriculture? You can get Ag ANYWHERE. Electronics can be hit-or-miss on the ability to source.