Why did Wall Street get so giddy about the latest developments in Donald Trump’s trade war with China? Stocks leapt on the back of hopes of progress, with the Dow adding more than 300 points.
Yet another round of tariffs comes into force on Chinese goods arriving in the US on Sunday, but China appears to be keeping its powder dry, at least for now.
Optimists pointed to its commerce ministry saying it was opposed to escalating the dispute and wants to resolve it. Investors are hoping more talks, which Treasury Secretary Steve Mnuchin said were expected to continue, without saying when, could lead to a resolution.
It’s thin stuff. With the US market still off by 2% on the month, weighed down by concerns about the economy, and with recession warning lights starting to flash red, there was a sense of Wall Street casting around for something to cheer itself up.
The chance of a resolution really rests on Trump’s political calculus.
His polling numbers are bad. The strength the US economy has shown under him has served as his long suit with voters outside the nativist crowd that can be counted upon to lap up his anti-immigration rhetoric.
A deal would boost it, lifting sentiment, spurring the Dow to claw back more losses. There are signs the tariffs are hurting parts of his base. Even something largely symbolic could be dressed up as a victory.
Set against that is Trump’s desire to be seen as a strongman, and to draw a distinction between that and whomever emerges from the Democratic field. America first!
Which will win out? Wall Street is crossing its fingers for the former. Given the way Trump has conducted himself, it shouldn’t get too excited.