Threats and Ultimatums: A New U.S.-China Trade Deal Doesn’t Seem Likely Anytime Soon

The United States and China appear to be further apart on a trade deal than ever before after Beijing named its price for ending the tariff war. The stipulations, which were unveiled to Chinese media on Saturday, came after President Donald Trump gave China one month to hammer out a new deal before facing a fresh tariff hike.

China’s Conditions

China’s Vice Premier Liu He has named three conditions for ending the trade war with the United States. As Bloomberg reported, Liu said the U.S. must cancel all additional tariffs on Chinese goods and ensure that the official text of the agreement is “balanced” and maintains the “dignity” of both countries.

The interview came less than a day after the Trump administration hiked tariffs on $200 billion worth of Chinese goods. President Trump unveiled his plans to raise duties in a Twitter tirade last Sunday after one of his trade advisers complained that China was reneging on a new deal.

China’s Commerce Ministry has threatened to retaliate to the tariff increase but has not announced how it plans to do so. Both countries held high-level talks on Thursday that were described as “constructive” by Treasury Secretary Steven Mnuchin.

Trump Administration Ups the Ante

President Trump has given China one month to finalize a deal or face duties on all of its exports to the United States. Trump trade czar Robert Lighthizer recently announced that the administration would on Monday release a detailed plan for tariffs on an additional $300 billion worth of Chinese goods.

It took less than a week for months of progress on a new deal to evaporate. The Wall Street Journal has for months been reporting that a new deal looked imminent, but confusion and miscommunication have set negotiators back significantly.

China has reportedly backtracked on a prior commitment to change its industrial policy that currently forces U.S. companies to hand over intellectual property. China hasn’t denied these reports but says its tone shifted because the United States was making significant concessions in support of a new agreement.

Liu has described the latest fallout as “temporary resistance” and a “distraction” at a time when both sides were making important progress. “It’s normal to have hiccups during the negotiations. It’s inevitable,” he said, as per Bloomberg.

Markets on Edge

The U.S. stock market is coming off its worst week of 2019 as trade-war tensions rattled investor confidence. After setting a fresh record high in early May, the S&P 500 Index tumbled 2% last week. The large-cap index was on track for a deeper fall before correcting higher late Friday. Read more.

CBOE VIX
The CBOE VIX Volatility Index spiked last week. | Chart via Stockcharts.com.

Wall Street’s preferred measure of investor anxiety has also set off an ominous warning about the bull market. The CBOE Volatility Index, commonly known as the VIX, surged more than 50% in the first two days of last week and eventually peaked at its highest level since early January.

VIX, which trades on a scale of 1-100, briefly traded above 23.00 on Thursday. Any reading above 20 suggests volatility is becoming too much for the market bulls to handle.

CBOE VIX and S&P 500 Index
The VIX and S&P 500 trade in inverse fashion at least 75% of the time. | Chart via Stockcharts.com.

The volatility gauge declined sharply on Friday as stocks reversed losses. It closed at 16.04, down 16% on the day.

If trade talks continue to sour, investors should expect volatility to surge. This is a bearish indicator for the bull market.

Bond king Jeffrey Gundlach expects things to get worse as both sides draw their line in the sand. In a recent interview with CNBC, Gundlach said the chances of maximum tariffs on all Chinese imports to the U.S. “is better than 50%” because “both the premier of China and the president of the United States want to come across that they prevailed and didn’t give in.”

Featured image courtesy of Shutterstock. Chart via Stockcharts.com. 

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi