President
Trump
has long claimed he wanted a big deal with China. There is no sign of that, but a mini-deal that takes tensions down a notch without addressing fundamental issues looks increasingly possible. Markets are celebrating but investors shouldn’t overestimate the impact outside of a few sectors like agriculture.
U.S. stocks and the Shanghai Composite Index were both up sharply, the latter about 1%, after President Trump confirmed Thursday that he was planning to meet Friday with Liu He, China’s lead trade negotiator. Previous media reports had claimed that the Chinese delegation might head home early on Thursday night due to a lack of progress.
If there is a deal, it will likely include more purchases of U.S. agricultural goods by China, which would offer some welcome relief to beleaguered American farmers. It could also include licenses for some U.S. companies that sell components to Chinese technology giant Huawei. Further U.S. tariffs on Chinese-made consumer goods scheduled for December could be delayed.
If that is the deal, it is a net positive for both economies—but doesn’t eliminate the fundamental problems weighing on industry on both sides of the Pacific.
First, hundreds of billions of dollars of Chinese goods would remain subject to U.S. tariffs—a situation that is punishing small-scale American importers in particular. Confidence among small businesses fell in August to its lowest level since 2012, according to a recent Wall Street Journal survey.
The biggest problem for U.S. business may simply be uncertainty about future trade policies, which hits investment and hiring. After a steady rise throughout 2017 and 2018, U.S. manufacturing employment has flatlined since early 2019, shortly after a tariff increase on $200 billion of Chinese goods went into effect. Since then, duties have risen further, but Mr. Trump’s constantly changing China trade stance might have inflicted more damage by undermining business planning and confidence that any agreement reached will be permanent. A limited deal won’t change that dynamic.
In comments to reporters on Thursday, President Trump said trade talks between the U.S. and China are going well and should be wrapping up soon. Photo: Nicholas Kamm/AFP
Second, what ails global trade and industry right now isn’t just the trade war. China’s crackdown on shadow banking, which intensified in 2018, is weighing on investment and demand for capital goods and commodities—hitting everyone from German machinery exporters to Chilean copper miners. The weak yuan magnifies the effect. And the endless uncertainty in Europe over Brexit might be hurting investment and growth there too, which in turn feeds into weaker demand for U.S. goods.
Given Mr. Trump’s mercurial approach to deal making, there is no guarantee that anything will come out of Friday’s meeting. But if a truce does materialize, investors should take it as a palliative for global manufacturing, nothing more.
A real cure requires a credible denouement to the endless Sino-U.S. trade bickering, lower U.S. rates and—probably—a rebound in the Chinese domestic investment cycle.
Write to Nathaniel Taplin at nathaniel.taplin@wsj.com
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