It’s no secret that Donald Trump wants the stock market to go higher.
A much lower stock market would provide a very big challenge for Trump in 2020, especially since the strength of the economy (as measured by the stock market) is one of the two main things he still has positive numbers on. The second positive, most especially shared by his base, is how he has handled China and the trade war.
Equity bulls are hopeful that Trump will make a deal. It’s the main reason why the stock market continues to levitate near all-time highs, even in the face of so much negative data. The expectation is that markets could pop 10% higher on news of a deal or truce. While that could very well help Trump if stocks drive higher, that solution has risks for Trump in two main ways.
The first is this. While stocks could pop higher in the short term on news of a trade deal, the long-term indicators suggest we are in a slowing growth and recessionary environment both here and abroad. If Trump gets his stock market pop too soon, any subsequent market sell-off could coincide with the 2020 election. The second and even bigger issue for Trump is this. He cannot afford for his base to view any trade deal as weak and manufactured for short-term benefits.
There are many who believe that the only deal China will agree to, is a deal that we won’t want to accept. According to Kyle Bass, the original trade deal negotiated by U.S. Trade Representative Robert Lighthizer and team was 160 pages long. It was a deal the US was prepared to sign because it had dozens of checks and balances that could be measured. Oversight that would ensure China’s compliance.
The evening before signing, the Chinese removed 50 pages from the document. All of their removals, according to Bass, were focused on areas of transparency and verification. In short, China was willing to agree to a deal, but not any of the oversight that would ensure its maintenance. Bass believes that the Chinese will never agree to the degree of oversight we demand.
If Trump agrees to a deal with China that foregoes that oversight to get his beloved stock market higher, it could be seen as a big win for China and a huge loss for the United States. That result, even with a higher stock market, would likely submarine Trump’s 2020 re-election bid.
The truth is that China has never been more incentivized to wait Trump out. The impeachment proceedings no doubt will only further embolden their stance. Trump cannot afford to make a weak deal. As a result, don’t be surprised if the equity bulls biggest hopes get shattered this month.
Trump’s best bet could very well be to turn up the heat on China in this next stage of talks and take his stock market beating now, with time still left before the election to come to the rescue and resuscitate them. It’s the trickiest situation Trump has encountered to date.
Adam Baratta is the author of the national best-selling book "Gold Is A Better Way." He is one of the leading voices in the field of investments and precious metals today. Adam is the co-owner of Advantage Gold, the highest rated precious metal firms in the country, and the creator of an educational member site. To receive a free copy of his book, go to: https://goldisabetterway.com/