Trade news has been positive in recent weeks, with China announcing that tariffs would be rolled back if a Phase One deal can be agreed with the United States. Markets have been upbeat with the hope that the long trade war could finally be ramping down.

While President Trump is hopeful that a deal will be signed soon, he has also warned that he would implement new tariffs if there is no progress in upcoming talks. The President’s comments sent Asian markets downwards on Wednesday, which could signal a similar decline in the U.S. when markets open today.

An Interim Trade Deal is Close to Being Finalized

President Trump spoke at the Economic Club of New York on Tuesday, telling members that a trade deal with China “could happen soon.” He said that a Phase One deal was “close”, but also gave a warning to investors, the Chinese government, and other nations.

He warned during his speech that “If we don’t make a deal, we’re going to substantially raise those tariffs. They’re going to be raised very substantially. And that’s going to be true for other countries that mistreat us too.”

Trump said that China was “dying to make a deal”, a sentiment that he has repeated throughout the last year, despite progress being painfully slow.

Trump Comments Designed to Pressure Chinese Government

Some observers will be confused by the double message that Trump has carried in recent weeks. Despite saying that a trade deal is near, he has also threatened consequences if a deal is not signed.

A deal with China is needed for both sides. The economic damage is in the tens of billions, and the U.S. trade deficit has only increased since tariffs were first implemented in 2018.

Trump knows that China wants to make a deal so that its manufacturing industry will be protected. Threatening to increase tariffs is a way to pressure the Chinese government into action. It’s a warning that, should they renege on soft agreements, there will be consequences.

Investors are advised to follow the news closely, especially as we approach the end of 2019. Politically, a trade deal would be beneficial to the administration that has sustained the longest period of economic growth in history. A finalized trade deal would justify the President’s hardball strategy, and it could set the stage for fairer trade conditions with all of America’s largest international partners.