- The Dow Jones Industrial Average (DJIA) had a nervy start on Wednesday, opening almost completely flat.
- President Trump is expected to sign the ‘phase one’ trade deal today and in a ceremony with Chinese Vice Premier Liu He.
- But critics say the lack of real enforcement means the deal will have little impact.
The Dow Jones Industrial Average (DJIA) opened with a whimper on this historic Wednesday. President Donald Trump is expected to sign his “monster” trade deal with China today, ending months of speculation and conflict. But traders are concerned about a glaring hole in the agreement.
There is no concrete way to enforce it.
Although Treasury Secretary Steven Mnuchin has promised an enforcement provision, it centers around tariffs, and there’s nothing to stop China retaliating, which would return both sides to the status quo, according to Reuters.
Trump – China deal is “Theater of the Absurd”
Analysts and traders are increasingly concerned that the phase one agreement contains “double standards” and will have little impact. Ipek Ozkardeskaya of Swissquote Bank wrote:
The US – China trade deal is like watching a live show in the theater of the absurd… The risk here is that the double-standard agreement could provide a weak basis for the future negotiations, impair the benefits, or even spoil the deal.
Nervous stock market open for the Dow Jones
The Dow Jones opened flat today after a lacklustre session in Europe and Asia overnight.
Is the trade deal enforceable?
As part of the deal, China will reportedly agree to purchase $200 billion worth of U.S. goods in the next two years. But critics claim there is no way China can meet this obligation.
In a bid to make sure China complies, Trump has wielded the tariff threat. The president shocked the markets yesterday by refusing to remove tariffs as part of the deal. But, as Reuters reported, there is no written provision that stops China from retaliating in return.
“The deal allows Washington to reinstate tariffs on Chinese goods if it cannot resolve a claim of Chinese non-compliance, but nothing would preclude China from retaliating”, people familiar with the deal said.
In other words, matters could quickly descend back into the status-quo tit-for-tat trade battle.
Dow Jones response? Buy the rumour, sell the news
No surprise that the Democrats have also come out swinging as details of the trade deal emerge. New York Senator Chuck Schumer called it a “weak” deal and warned that America was being “steamrolled.”
The terms seem like they’ll result in very little progress in reforming China’s rapacious trade behaviors. It could send China a signal that the US can be steamrolled.
The struggle in the Dow Jones futures market this morning is a classic ‘buy the rumour, sell the news’ event. The stock market has priced the trade deal news to perfection. As holes emerge, the market is seeing it as an opportunity to sell.