15/1/20: What Trade Deal Phase 1/N Says About the Four Horsemen of Apocalypse

Phase 1 of N of the "Greatest Trade Deal" that is "easiest to achieve' by the 'stablest Genius' is hitting the newsflows today. Which brings us to two posts worth reading on the subject:

Post 1 via Global Macro Monitor: https://global-macro-monitor.com/2020/01/15/phase-1-of-potemkin-trade-deal-signed-sealed-and-yet-to-deliver/ is as always (from that source) excellent. Key takeaways are:

• "We never believed for one moment that China would cave on any of the big issues, such as restructuring its economy and any deal would be just some token political salad dressing for the 2020 election."
• "Moreover, much of the deal depends on whether the Chinese will abide by Soviet-style import quotas," or in more common parlance: limits on imports of goods into the country, which is is 'command and control' economics of central planning.
• "We are thankful, however,  the economic hostilities have momentarily ratcheted down but the game is hardly over," with tariffs and trade restrictions/suppression being the "new paranormal".
• "Seriously, after more than two years of negotiations, they couldn’t even agree on dog and cat food imports?"

Post 2 via Market Watch: https://www.marketwatch.com/story/phase-one-trade-deal-wont-end-the-uncertainty-in-markets-hsbc-strategist-says-2020-01-15. Key takeaways:

• "The [trade] environment remains very much in flux and a source of concern and challenge for investors".

My takeaways from Phase 1/N thingy: we are in a VUCA world. The current U.S. Presidential Administration is an automated plant for production of uncertainty and ambiguity, while the world economy is mired in unresolvable (see WTO's Appellate Body trials & tribulations) complexity. Beyond the White House, political cycle in the U.S. is driving even more uncertainty and more ambiguity into the system. The Four Horse(wo)men of the Apocalypse in charge today are, in order of their power to shift the geopolitical and macroeconomic risk balance, Xi, DNC leadership, Putin and Trump. None of them are, by definition, benign. 

The trade deal so far shows that Xi holds momentum over Trump. Putin's shake up of the Russian Cabinet today shows that he is positioning for some change in internal power balances into 2020, and this is likely to have some serious (unknown to-date) implications geopolitically. Putin's meeting with Angela Merkel earlier this week is a harbinger of a policy pivot to come for the EU and Russia and Lavrov's yesterday's statement about weaponization of the U.S. dollar and the need for de-dollarization of the global economy seems to be in line with the Russo-German New Alignment (both countries are interested in shifting more and more trade and investment outside the net of the U.S. sanctions raised against a number of countries, including Iran and Russia).

DNC leadership will hold the cards to 2020 Presidential Election in the U.S. My belief is that it currently has a 75:25 split on Biden vs Warren, with selection of the former yielding a 50:50 chance of a Trump 2.0 Administration, and selection of the latter yielding a 35:65 chance in favour of Warren. The electoral campaigning climate is so toxic right now, we have this take on the latest Presidential debate: https://twitter.com/TheDailyShow/status/1217431488439967744?s=20. Meanwhile, debate is being stifled already by the security agencies 'warnings' about Russian 'interference' via critical analysis of the candidates.

Mr. Trump has his Twitter Machine to rely upon in wrecking havoc, that, plus the pliant Pentagon Hawks, always ready to bomb something anywhere around the world. While that power is awesome in its destructiveness vis-a-vis smaller nations, it is tertiary to the political, geopolitical and economic powers of the other three Horse(wo)men, unless Mr. Trump gets VUCAed into a new war.

BoJo's UK as well as Japan, Canada, Australia et al, can just sit back and watch how the world will roll with the Four punchers. The only player that has a chance to dance closely with at least some of the geopolitical VUCA leaders is the EU (read: France and Germany, really). 

18/12/19: Winning Trade [Price] Wars: Updated Data

With the recent announcement of the so-called Phase 1 'Trade Deal' with China, the U.S. President has claimed that his Administration is winning the trade war with Beijing and that the U.S. economy is gaining from the rounds and rounds of tariffs and trade restrictions imposed on its bilateral trade with China.

Here is a tangible set of metrics showing the cost indices for U.S. trade (exports and imports) over the period of President Trump's tenure, compared to the track record of his predecessors:

In basic terms, the adverse movements in imports prices have been more than offset by the positive movements in export prices since the start of the Trump presidency. However, two caveats to this warrant more cautious analysis of this data:

1. Mr. Trump's presidency has not been associated with statistically distinct imports prices performance, compared to the Obama administration (see averages and levels for import price indices in the above), while Mr. Trump's tenure has been associated with markedly lower export prices for the U.S. exporters (the blue line above); and
2. The gap between export prices and import prices (positive and larger gap signals higher relative prices of exports compared to imports - a net positive for the external balance), under Trump administration remains well below previous administration's track record (see chart next).

There is preciously little if any evidence in the trade prices indices to suggest that the Trump administration is either winning any trade wars or improving U.S. exporters' environment. If anything, there is more evidence that the U.S. economy is facing similar supportive tailwinds from global imports prices deflation to those experienced by its counterparts, and these are broadly in line with the tailwinds experienced by China: