China May Negotiate Because Of The Weakness Of Their Economy

Recent reports of some progress in trade negotiations between the U.S. and China may have caught some commodity analysts by surprise.  Initial reports showed China thought it was in a position of strength compared to the U.S.  Arlan Suderman, chief commodities economist with StoneX, said going into the tariff discussions, China appeared determined to hold out against the U.S.

“Right now, China believes that it is in a better position than the United States, because it can control the message, and it believes that if it waits out Trump, that he'll lose public support here in the United States, and Congress will clip his wings, so to speak, and then China won't have to give up anything, because they watch the news. They see the negative reporting, and that's what they're banking on right now, so overall, they're holding out for that, and they feel if they negotiate, they'll get a worse story.”

China Is Paying A Deep Price

However, recent economic data may be changing some minds in the Chinese government.

“When you look at China, the economic data is definitely turning lower with layoffs, 1000s of layoffs.  Factory numbers are going down.  Their orders are going down dramatically.  They're seeing the pain of it, and they're going deeply into debt to keep the economy going, to keep the economy stimulated, and do job retraining, create other ways for jobs, and put money into consumers’ hands, etc.," Suderman noted.  "So, they are paying a deep price for this, but they feel at this point that they have no choice if they're going to maintain their overall goals of eventually becoming the world's number one economy and number one military, because there's a sense there that if we're not on top, we may slip into irrelevance.”

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