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From the onset of America’s trade disputes, President Trump has used the strength and sheer mass of the U.S. economy to force our trading partners to renegotiate more U.S.-favorable trade agreements. In global trade disputes, the ability to both withstand and inflict economic punishment most often determines the winner.

At $21.5 trillion, the U.S. is the world’s largest economy, accounting for nearly a quarter of global economic output. Faced with their own weakening economies and the might of the U.S. economy, the European Union, Canada, Mexico, Australia, Argentina, Brazil and South Korea have all negotiated new trade agreements with the U.S.

But China is different. Not only is it America’s largest trading partner, but its $14.2 trillion economy is the world’s second largest. Negotiations between the U.S. and China are at a critical juncture. Back on Dec. 1, Trump and Chinese leader Xi Jinping agreed to a 90-day truce that prevents further escalation of this ongoing trade dispute. As part of the truce, Trump agreed to hold off on imposing a 10 percent tariff on $200 billion of Chinese goods that was to go into effect on Jan. 1.

But that truce ends on March 1. And if a broader agreement isn’t reached, Trump will increase the tariff from 10 percent to 25 percent. China would likely retaliate with a similar tariff on about $60 billion of U.S. goods.

So far, negotiations between the U.S. and China have not been fruitful. But on Jan. 30 and 31, Chinese Vice Premier Liu He and U.S. Treasury Secretary Steven Mnuchin will convene in Washington, D.C. in hopes of breaching this impasse. This may well be the last high-level discussion to reach an agreement before the March 1 deadline.

The sticking point of negotiations is the U.S. demand for unconditional access to the Chinese marketplace. For years, American companies have complained that to operate in China, they’re required to turn over their intellectual property and technology, in effect, to the Chinese government. The Chinese government then gives this intellectual property and technology to Chinese firms who then use it to compete against those very same U.S. companies. So far, China has provided a broad assurance this will end. However, the Trump administration is demanding greater specifics on how China will end this theft.

With the March 1 deadline approaching, a weakening global economy has fueled thoughts that Trump and China will be forced to give greater concessions than risk further damage to their respective economies. China recently announced its 2018 economic growth rate was 6.6 percent, the lowest since 1990. This year, China’s economic growth is expected to be just 6 percent. In 2018, China’s national stock market, the Shanghai Composite Index, plummeted by nearly 25 percent.

But what about President Trump? How does the current state of the U.S. economy impact his negotiating leverage? To answer, not much.

Amid the vast accumulation of America’s global trade disputes, Trump’s strategy has been to use a larger and stronger U.S. economy as muscle to overpower other nations’ smaller and weaker economies. And despite a gradually weakening U.S. economy, that’s exactly what he still has.

In the October-December fourth quarter, U.S. economic growth is expected to be reported at around 2.8 percent. Yes, this is below the second and third quarter growth rates of 4.2 percent and 3.4 percent, respectively. But a 2.8 percent growth rate is still relatively strong and well above the modest 2.175 percent pace the economy averaged for much of the past decade. Consumer spending, the key driver of the U.S. economy, remains strong. The November-December retail holiday shopping season had its best results in six years. The current round of corporate earnings also suggests that corporate America is still charging forward.

Indeed, a lot is riding on next week’s meeting in Washington D.C. Failure to reach an agreement will most likely trigger an escalation after the March 1 deadline. So far, this trade dispute has weakened the U.S. economy; but it has brutalized China’s. But don’t expect a gradually weakening economy to signal that Trump is willing to moderate his negotiating posture. All signs indicate the U.S. economy will remain just strong enough to continue his hardline negotiating tactics with China.

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Mark Grywacheski spent more than 14 years as a professional trader in Chicago, where he served on various committees for multiple global financial exchanges and as an industry Arbitrator for more than a decade. He is an expert in financial markets and economic analysis and is an investment advisor with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment advisor with the U.S. Securities Exchange Commission.

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