Donald Trump's foreign policy toward China and Iran has given global markets the shivers prompting observers to lambast the White House's strategy. Speaking to Sputnik, Wall Street analyst Charles Ortel explained what's behind Washington's contradictive trade course and what it could lead to.
Donald Trump's pullout from the 2015 Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran nuclear deal, has sent oil prices higher. At the same time, a looming all-out trade war between Washington and Beijing may backfire on both American firms and consumers. Does the US president know what he's doing?
"In the short term, changing seasons and supply/demand mismatches certainly can lead to increases in key benchmark prices for oil," Ortel told Sputnik. "But the reality is that the world has been awash in energy supply for reasons including monster discoveries, fracking, and changing patterns in energy use. Moreover, oil traded much higher from prolonged periods through August 2008, not even considering an attempt to consider current prices in 2008 terms adjusting for 'inflation.'"
Oilprice.com opined on May 13 that crude prices are likely to go higher, citing both the resumption of sanctions against Iran's energy sector and Venezuela's slump in crude production due to internal economic problems.
Previously, crude prices started recovering after a dramatic fall in 2014 as a result of Russia and OPEC's cuts in oil output since 2016. Soaring crude prices made Trump accuse the cartel of manipulating prices on April 20 after they reached three-year highs last month.
Currently, Brent and WTI are over $77 and $70 per barrel, respectively, while Merrill Lynch's commodity strategists predict that Brent may soar up to $100 per barrel by 2019.
China, India Heading Towards Economic Slowdown
According to Ortel one shouldn't raise the alarm about skyrocketing crude prices, as they are likely to be balanced by China and India's slowdown in economic growth.
Trump and his trade team have cracked down on China heavily since March. Besides imposing higher tariffs on aluminum and steel imports, the White House threatened China with the taxation of up to $150 billion of Chinese goods and barred the country's leading telecom manufacturer ZTE from purchasing American parts. According to observers, Washington wants to thwart Beijing's "Made in China 2025" program, which envisages the Middle Kingdom becoming a major technological powerhouse in the near future.
On May 13, Trump hinted that he could help ZTE "get back into business," in exchange for substantial concessions from Beijing. According to the Financial Times, what's primarily on the table is "a plan to reduce the US deficit by $200 billion in the next two years." In 2017 the US trade deficit with China amounted to $375 billion.
A Forbes' contributor, Australian sociologist Salvatore Babones, believes that Trump is seeking to raise the stakes by exerting pressure on China's high-tech producers and internet platforms to strike a better deal.
The sociologist underscored that while US companies "can live without China," "China's top tech firms can't live without the United States" giving Washington leverage to slow down the Asian giant's rise without unleashing an all-out trade war on it.
Furthermore, according to the analyst "the US is poised to become a net exporter of energy" after the US Congress lifted a 40 years ban on energy exports in the beginning of 2016.
How Trump is Planning to Heal America's Old Wounds
The investigative journalist provided his vision of rationale behind Trump's recent moves.
The Wall Street analyst believes that Trump and his team "understand that it will take much time for the investing class to wean itself away from dollar, euro, and yen assets." On the other hand, he underscored that "geopolitical instability creates price support for the US dollar."
Given these, "the stock of US and global wealth (several times larger than annual economic output) is not likely to be significantly or permanently harmed by renegotiating trade agreements," Ortel argues.
Even though trade tensions with China could "push up certain prices on imported goods," it may bear positive fruit, as "such actions will also encourage domestically produced replacements, in time," he explained.
According to the analyst, while the US and international community face "many daunting challenges," Trump "is building upon strengths, working to address weaknesses and, most important, trying to fix problems inside and outside the world that the political class never managed to fix." - Sputnik -