By CCN: Dow Jones futures point to a calamitous open for the US stock market on Thursday. Reports out of China suggest that hopes of a trade deal are further away than anyone could have imagined: a terrifying 15 years.
Chinese government researcher Zhang Yansheng said this morning that China and the US will be locked in battle until 2035. The news dashed traders’ hopes of a trade deal conclusion before the next Presidential election.
Dow Jones Crumbles 250 Points
As of 6.26 am ET, Dow Jones Industrial Average (DJIA) futures plunged to a 250 point loss (-1 percent), extending Wednesday’s loss of 100 points.
S&P 500 futures slumped 31 points (-1.09 percent) and Nasdaq futures chalked up even bigger percentage losses with 113 points (-1.52 percent) wiped off the tech-heavy index.
Sino-American trade war: the worst is yet to come
Speaking to Bloomberg on Thursday Zhang Yansheng said the infamous trade war is only just getting started. Donald Trump is demanding too much, too soon from the Chinese government, Zhang said.
Trump insists on twisting Xi Jinping’s arm on trade, structural reforms, and legal amendments all at once. Zhang implied that incremental changes would yield better results.
“None of these three topics can be realized in the short term” – Zhang.
The Chinese government researcher said talks will reach a complete impasse between 2021 and 2025. Only after that will the two super-power nations move towards “rational co-operation.”
Dow traders are ignoring China warnings
The warning echoes comments from former US ambassador Curtis Chin who said trade negotiations will get worse before they get better.
“Xi Jinping needs to show he is in charge, that there’s stability in that nation as he continues to struggle to revive that better life for all Chinese.”
Dow Surges While Traders Recklessly Ignore Thundering Alarm Bell https://t.co/v5lxf7yYrK
— CCN.com (@CCNMarkets) May 21, 2019
What Dow traders haven’t accounted for is China’s long-term economic plan which has little room for compromise before 2035. As Zhang explains, Xi Jinping operates in five-year economic chunks. According to this plan, China won’t reach “socialist modernization” for another 15 years.
Before that, China has little intention of bowing to US demands and international co-operation. In fact, all signs point to China’s increasing nationalism.
No return trip to Beijing scheduled
Compounding the bad news, US Treasury Secretary Steven Mnuchin confirmed yesterday that there are no plans for a return visit to Beijing.
Trade talks have ground to a halt after Trump’s crackdown on Huawei. And according to the South China Morning Post, Xi Jinping is rethinking his entire approach to the trade negotiations.
The promise of a historic trade deal between China and the US has pushed the Dow to near record highs. But the harsh reality is slowly dawning on Wall Street. A trade deal will take years, if not decades and investors need to be prepared for that scenario.