When it comes to trade negotiations and the ongoing trade war with China, one economist says the communist country is “counting on surviving President Trump.”
Arlan Suderman chief economist for INTL FCSTone told AgriTalk host Chip Flory President Donald Trump may not have time to work out the details left to secure a long-term deal with China.
“The word inside of China is that last summer when this trade war started, work began on disgruntled people within the inner circle of power and that problem has been dealt with shall we say, and [President Xi] has shored up his power,” he said last week following the return of an INTL FCStone analyst from a trip to China. “So, at this point, we don't see any evidence that he plans on giving on the significant structural issues.”
Structural issues continue to be the sticking point. Suderman is quick to point out that this doesn’t necessarily mean the two countries won’t ever reach an agreement. However, Trump’s insistence on steps to hold the Chinese government accountable to the agreement is the No. 1 challenge at this point.
“[President Xi has] had agreements with plenty of presidents of both parties in the past, he just didn't live up to them,” Suderman said. “President Trump, having seen what's happened with other presidents, is asking for verification in enforcement procedures if they violate the agreement. That's the real problem.”
It will take time to pressure the Chinese government into making a deal.
“It's our assessment, looking at the structure of the Chinese economy, that on the path that we're on, we could probably bring China to its knees to change it stripes so-to-speak on those structural issues, after about eight years,” Suderman said. “President Trump has, at the most, six years. It's our assessment that because of term limits here on the presidency, he will not be able to force China. China's counting on just surviving President Trump.”
If Europe helped with this economic push, Suderman said that timeframe would be shortened.
“If Europe were to join with us, we could probably do it four years, but you can question if they will to do it,” he said. “They don't have the economic strength to survive that kind of a battle, our economy is much stronger in Europe’s.”
While the Chinese economy is suffering as a result of the trade war, the people are not putting pressure on the government and are instead aiming that anger at the U.S.
“The Chinese people feel like they don't have any choice here,” he said. “In fact, they're turning their anger at the United States for doing this. They blame the United States and Russia for African swine fever. So, they see us as the enemy and that's the perspective that they have overall.”
Chinese discretionary spending is declining, according to Suderman. He says they are forgoing new phones and new TVs.
“That's where we're seeing the big slowdown in their economy,” he said. “We believe and economists inside of China to told us privately, they believe the economy is really growing at about 1.5% rather than a 6.4% government says.”
Is a deal possible? We could still end up with an agreement, but not with the long-term structural issues addressed, Suderman said.
“Any agreement would be short-term good for the commodities and that's what the markets like,” he said. “That would probably see a dramatic increase in commodity movement toward China over the next several years. So, that'd be short-term good for us. The question is when and if we get that agreement.”