Trump Pushes China Trade Deal to Boost Markets as 2020 Heats Up

(Bloomberg) -- President Donald Trump is pushing for U.S. negotiators to close a trade deal with China soon, concerned that he needs a big win on the international stage -- and the stock market bump that would come with it -- in advance of his re-election campaign.

As trade talks with China advance, Trump has noticed the market gains that followed each sign of progress and expressed concern that the lack an agreement could drag down stocks, according to people familiar with the matter. He watched U.S. and Asian equities rise on his decision to delay an increase in tariffs on Chinese goods scheduled for March 1, one of the people said.

The world's two largest economies are moving closer to a final agreement that could end their almost year-long trade war, an outcome that would also provide a boost to his efforts to seek reelection in 2020. A new trade accord that would provide Trump with a much-needed win after the collapse of his summit with North Korean leader Kim Jong Un.

Trump, who met with his trade team Monday, has expressed interest in hosting Chinese President Xi Jinping for a signing ceremony on a deal as soon as this month. His enthusiasm for a pact could shape crucial decisions such as balancing Chinese pressure to lift tariffs immediately against trade hawks' arguments to initially maintain duties as leverage to assure good behavior by Beijing.

Trump's fixation on stock-market performance has shaped his assessments of his economic policies. Top White House staff know to be aware of how markets are performing when summoned to the Oval Office to speak with Trump because the president often asks: ‘‘What's happening with the markets?''

Advocates of concluding a deal within the administration have seized on that fixation to bolster their case, one person said.

Trump's economic team has told him an agreement will unleash a market rally, said the people, who requested anonymity to discuss internal deliberations. Advocates of a compromise with China have also told Trump it is crucial to cut a deal soon to reap the full boost ahead of the election because benefits such as more Chinese purchases of U.S. soybeans and other products will have a delayed impact and take time to reverberate through the economy, they said.

The White House communications staff declined to comment.

The trade war between the two nations has weighed on the stock market, with Renaissance Macro Research concluding that the S&P 500 would be 11 percent higher without the impact of the feud. Still, U.S. stocks have regained most of their losses from the autumn when investors were more pessimistic about trade prospects.

Some investors say a deal isn't likely to have a major impact because it's already mostly priced into the market as a result of the recent positive signals from the administration. On the other hand, failure risks roiling stocks.

“The risk could be more to the downside, but on the other hand this would take away some uncertainty and that is good for companies looking to invest,” said Sebastien Page, head of global multi-asset strategy at T. Rowe Price in Baltimore. “If we get a meaningful trade deal, there is some upside scenarios for emerging market stocks.”

U.S. equity futures slipped, European shares firmed and Asian benchmarks were mixed Wednesday, with the Dow Jones, Nasdaq and S&P 500 all declining as reports showed the U.S. trade deficit widened in 2018.

China is also tempering expectations.

“China's concessions probably won't be very big because a lot of their demands are what we already plan to reform,” former finance minister Lou Jiwei said in Beijing on Wednesday, calling some U.S. demands for change "unreasonable."

Inside the White House, key economic advisers including Treasury Secretary Steven Mnuchin and National Economic Council Director Larry Kudlow are eager for a quick resolution to the trade conflict, while trade hawks such as U.S. Trade Representative Robert Lighthizer has taken a tougher line with China.

Trump is facing pressure from both parties in Congress, with Senate Democratic Leader Chuck Schumer in a floor speech on Tuesday cautioning the president not to settle for a weak deal with China.

“But now, when you're getting close to a victory, to relent at the eleventh hour, without achieving meaningful, enforceable, and verifiable structural reform to China's trade policies would be an abject failure of the president's China policies and people will shrug their shoulders and say what the heck did he begin this for if he won't complete it,” Schumer said.

--With assistance from Jenny Leonard.

To contact the reporters on this story: Jennifer Jacobs in Washington at jjacobs68@bloomberg.net;Saleha Mohsin in Washington at smohsin2@bloomberg.net

To contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Michael Shepard, Joshua Gallu

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