Derek Scissors on US-China Tensions: The Lack of an Endpoint

The Geneva Agreement and Its Lack of Substance

• 💡 The recent agreement in Geneva between the US and China is criticized for lacking any publicly available text of substance.
• ⚠️ The administration's claims that China would reform its economy and rebalance to consumption are described as "utter nonsense".
• 🎯 The current administration is seen as having put itself in a box by expecting major concessions from China, which are unlikely.

US Strategy and Escalating Threats

• 📌 The US administration has taken actions that have resulted in both public relations and legal blows.
• 🚀 Threats to target subsidiaries as well as parent companies are seen as overdue, and licensing requirements suggest a slow ramp-up of threats.
• 📈 The real problem identified is the absence of a clear endpoint in the US-China trade tensions.

China's Strategic Response in Trump 2.0

• ⚡ In contrast to Trump 1.0, where China was perceived as "all bark and no bite," China in Trump 2.0 is described as strategic and focused on choke points.
• 🗣️ China is less quick to go to the negotiating table, prompting Trump to escalate pressure, such as with 145% tariffs, to force conversations.
• 🎭 Trump employs a dual strategy of escalating threats while simultaneously offering de-escalation through claims of ongoing conversations to allow China to save face.

Market Reactions and Future Outlook

• 📈 President Trump's consistent desire for leverage before negotiations is noted, though the specific desired outcome remains unclear.
• ⚠️ The market may not take future threats as seriously due to past experiences with tariffs and the phase one trade deal being disrupted by COVID-19.
• 🔮 It is suggested that while threats will likely increase, the market will probably look through them, but betting on Trump always backing down could eventually lead to being burned.