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12/21/19

USA: There Will Be No Going Back: Wall Street's Confounding Optimism Over An Elusive Trade Deal With China - by Pedro Nicolaci da Costa

A sharp disconnect is emerging between America’s economic reality and Wall Street’s curiously blind optimism about the future, reflected in another record-setting streak for US stock prices despite a weakening economic outlook.

US President Donald Trump’s multi-front trade war has raised recession fears and contributed to a renewed contraction in US manufacturing activity, forcing the Federal Reserve to react by reversing course on interest rates and cutting them again three times this year. The Atlanta Federal Reserve is now forecasting an alarmingly weak 0.4 percent annualized rate of growth in the fourth quarter.

Yet stocks are happy to keep on trucking to new heights on even the tiniest rumor suggesting some progress on the trade conflict between the United States and China, the world’s two largest economies.
Long-term investors should be reticent, however.

For one thing, Trump has shown a distinct inability to stick to even any modest deals he does manage to strike. After pulling out of the long-standing North America Free Trade Agreement (NAFTA) with Mexico and Canada and following a painstaking renegotiation, 

Trump nearly torpedoed the entire process with a surprise threat, later recanted to introduce tariffs on Mexico based on immigration quotas.

Perhaps, and more importantly for those concerned about the long-term stability of the global economy, Trump’s erratic and roughshod behavior has likely damaged the world’s trading system irreparably.

That is not to say existing trade deals were perfect. Far from it. Most failed to address crucial issues around workers’ rights, the environment and even the democratic autonomy of nation-states. Hopefully, the next US president can and will begin to take on some of those concerns in earnest.

However, wrecking the system without any plans for what comes next as Trump is doing is even more destructive.

Read more at: There Will Be No Going Back: Wall Street's Confounding Optimism Over An Elusive Trade Deal With China - Emerging Market Views

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