Trump's overhyped trade war deal with China is still lurking on Wall Street

• Every time President Donald Trump says he has a trade with China, the stock market is rising.
• And then it turns out that the deal is steam.
• Meanwhile, US-China relations continue to deteriorate in the background, making some bullish on a deal look even more absurd.
• Stop it, Wall Street – you embarrassed yourself. And we hate to see it.

People, people, people. Why is this still happening?

On Thursday, President Donald Trump announced that he had a trade agreement with China, and shares rose sharply. Everything was good in the universe on Wall Street. The administration gave itself a pat on the back.

However, a few hours later, everyone realized that this "phase-one deal" sounded very much like the US and China trade war tent came in December last year. In this latest "mini-deal", just like the nine-month deal, both parties agreed that China would buy some agricultural goods here and there, and for exchange the US tariffs would not increase so far.

(There are more details, we must assume, but they are difficult to understand since the agreement was not written down or something this time.)

This agreement, of course, leaves untouched the deep structural disagreements between the United States and China ̵[ads1]1; questions that includes major changes in China's business practices and law enforcement – unresolved. These are the questions that are at the heart of the Trump administration's rationale for starting the trade war.

And look, in the days that followed the announcement of this "phase-one deal", the cracks began to show:

The S&P 500 is pretty flat for the month – one-phase deal or no. But it seems that every time the president makes these statements, the market gets excited, just to be let down again.

Let me tell you a story about the president. From 1986 to 1988, Trump reportedly made millions by investing in the stock market. His strategy was to leak to Wall Street that he would take over a company, like a true business angler. Then he had quietly sold his shares before everyone found out that he was bluffing.

It all ended because Wall Street, after two years, figured that Trump's bark was much worse than his bite.

How long will it take this time?

President Pump-and-Dump

Meanwhile, while Trump is pumping his trade deal and Wall Street stupidly gets his hopes up, the rest of US-Chinese diplomatic relations are in meltdown mode.

So while Trump may say that the trade war with China is on the way to disintegration, in the rest of the relationship chaos reigns.

And according to Sam Bresnick and Paul Haenle at Foreign Policy, some in China like it that way.

For them, a Donald Trump who is willing to let democracy falter in Hong Kong (and the rest of Asia), who have no confidence in his allies, who can easily be fooled, is a president who can create that kind of opening which would allow China to take terrain on a fast tilting planet. A Chinese thinker called it the "greatest strategic opportunity since the end of the Cold War."

From their piece, which is very worth reading:

During countless short-term discussions with Chinese government officials and scholars, we find that more and more hope for Trump's reelection next year. At a time when China's political influence and military capabilities are growing, they claim that despite his anti-China bluster, Trump has given Beijing room to expand its influence across Asia and, more importantly, extensively weakened Washington's global leadership. From a zero-sum point of view, many Chinese have concluded that Trump's policy is strategically very good for China in the long run.

On top of all these complications is the simple confidence. Last month, Beijing hosted a China Development Forum Special Session attended by politicians and technocrats around the world. According to Susan Thornton, a former deputy secretary of state for East Asian and Pacific affairs, the message was that the Chinese do not believe Trump is acting in good faith.

"They think Trump wants China fighting for elections in November," she said during a phone interview with Business Insider. "They think he won't make a deal."

Thornton told us that the American and Chinese side have trouble understanding each other. Chinese diplomats tend to be subtle in their dealings; the US president is not a subtle man.

"Trump presides over the bleeding of US credibility," Thornton said. "There is no way the Chinese believe in the United States … and after seeing Trump's writers on the world stage how is anyone going to make a deal with us ever again?"

If we get stuck in phase one

Now you might be thinking to yourself: At least the trade war is not getting worse. If we get stuck in phase one, we are stuck in phase one.

The problem is that phase one is already causing havoc in the global economy. Until September, the American consumer was the undisputed champion who held things together in a world of negative interest rates, decline in trade and production data and declining business investment.

But last month, US retail began to decline. And now, the Federal Reserve's Beige Book – a quarterly survey of businesses around the US released last week – is filled with complaints about how the trade war is limiting sales and raising stakes.

Then that's what happens in China, the world's second largest economy. Last quarter, GDP growth slowed to its lowest interest rate of three decades, 6%. Trade, production, industrial production – all falling. One bright spot is infrastructure investment, which is supported by the government and is considered a playground for dangerous shadow banking.

The world needs a proper US-China trade agreement if economic growth returns to the planet, not fake agreements the Trump administration continues to serve. Wall Street – the so-called masters of the universe and the underlings who serve them – should be smart enough to know a good deal when they see one. But no. So far, they have bought just about every pump the president has sold them. We hate to see it.