Looks Like China Is Going Its Own Way

In spite of recent market optimism, China seems to be walking away from the US as a trading partner

In spite of recent market optimism that president Trump is softening his tariff stance toward China, we think investors should be realistic about the prospect of the US and China normalizing trade relations. The current narrative is Trump has soften his tariff stance due to the wise influence of Treasury secretary Bessent, the cooler heads have prevailed. All is well now. We can resume our regularly scheduled programming and let the bulls take over. The month's early selloff was gradually gained back with the index finishing down about a half a percent (-.68%) for April. Not bad when you consider we dodged a trade war.

But have we? This market's rally is all due to Trump's mid-day pronouncements; a 90 tariff postponement one day, a careful carve out for a key industry the next. But conspicuously nothing from any of our key trading counter parties. Not from Japan, the EU, Australia, China or any other major trade bloc. And while the administration over hyped its memorandum agreement in principal with the UK, investors would do well to keep it in perspective.

Current trade blocs

US Trading Partners, measuring goods & services

1. European Union - $1.7 Tln

2. Mexico - $800 Bln

3. Canada - $775 Bln

4. China - $600 Bln

5. Japan - $225 Bln

6. South Korea - $180 Bln

7. UK -$140 Bln

8. Taiwan - $125 Bln

9. Vietnam - $125 Bln

10. India - $122 Bln

It looks like Trump is trying to back down from his trade war and declare a PR victory. Liberation Day's market volatility, just a leverage tactic. He's playing 3D chess, we just cant see it yet. That seems to be the narrative for US audiences. It's effectiveness is still open to question. What's the narrative to rest of the world? We don't see a consistent message here and it's effectiveness is doubtful.

As allocators of investment capital we must ask; What are our trading partners saying; more importantly, what are they doing? US trade is highly concentrated, with the top 5 trade partners taking up 85% of annual trading revenue. Lack of positive response from the EU, Mexico, Canada or China should be enough to be wary of this recent rally.