What Investments Will Benefit from
the Phase One Trade Deal?
With much hullabaloo the White
House announced the completion of a
Phase One trade deal with China.
The Chinese negotiators in Beijing are
said to be ecstatic and even
incredulous at how they believe the
Americans caved in on previous “rock
solid” negotiating positions.
But, stocks rallied a bit and many
investors are happy. The question now
is what investments will benefit from
the phase one trade deal, how secure
these benefits will be, and how long
they will last.
The Chinese have a long history of
promising things in regard to world
trade and a long history of now
following through. That is our first
The second is that this deal does not
seem to move toward freer trade but
toward increasingly managed trade!
Again, what investments will benefit?
Trade Deal Increases Rather Than
Removes Barriers to Investment and
The New York Times notes that
Trump’s trade deals tend to increase
rather than remove trade barriers.
Mr. Trump’s new trade deal with
China promises to lower some of the
walls Beijing has erected for foreign
companies - including opening its
financial markets, streamlining
imports of American agriculture and
offering greater protection for
But it leaves in place tariffs on the
bulk of Chinese imports - more than
$360 billion worth of goods. And it
requires voluminous Chinese
purchases of American products -
$200 billion of additional sales
over the next two years, according to
the Trump administration - a
significant shift that experts say
moves trade policy away from
promoting free markets and back
toward an earlier era of managed
It turns out that Trump does not trust
free trade. He trusts when he can
make deals on and believes he has the
leverage to control. This is the same
approach as the Chinese Communist
Party takes on managing their
economy from the top down and
dispensing favors to those well-placed
by politics or family.
That approach is causing problems for
China and goes against the long term
efforts of the US and EU to get China
to open up and quit controlling all
aspects of their economy to the
exclusion of foreigners.
How to Benefit from the Phase One
Because this is a “controlled” deal,
you need to look at who is specifically
favored and if those “favors” are
likely to come to be and likely to last.
Will Chinese Tech Stocks Benefit
from a Trade Deal?
Interestingly, there are a number of
Chinese stocks that will benefit,
according to Morgan Stanley!
Morgan Stanley has flagged 29
Chinese stocks that are most likely to
benefit from the completion of a
phase one deal between the U.S. and
Nearly half of them are from the
information technology sector, which
has been hit by the trade war as
those companies have been on tariff
lists. Eight are from the consumer
“These two sectors saw the biggest
scale of valuation re-rating based on
their previous reaction to de-
escalation events,” Morgan Stanley
said in a report last week.
So, one way to benefit from the phase
one trade deal may be to buy Chinese
Does US Agriculture Benefit from
the Phase One Trade Deal?
According to reports, the phase one
trade deal includes billions of dollars
in agricultural purchases.
We wrote a year ago how the trade
war damaged investments in US
agriculture. In that article, we noted
how farmers in the state of North
Dakota planted soybeans instead of
wheat and other crops and how the
support system of rail links, grain
elevators, and other facilities were
upgraded to sell massive amounts of
soybeans to China.
Then the Chinese cut off purchases in
retaliation in the trade war and the
strong dollar further hurt US
The problem for US farmers and
agricultural businesses is that they
need foreign markets and they need
reliable foreign markets.
If the current deal becomes “re-
negotiable” as they move into the
next phase, this simply undercuts the
farmers and the farm businesses
Trump’s Rationale for Investment
and Trade Negotiations
The president does not believe in free
trade. His rationale is that the
Chinese will never abide by any deal
that does not benefit them or which
they need to follow to avoid economic
As such, the US is giving up efforts of
US administrations going back to
Nixon to get China to open up and
join the rest of the world on a fair
basis. Every trade deal going forward
will be tit for tat and controlled by
what the Chinese are willing to do in
return for what they want.
So, what investments will benefit
from the phase one trade deal?
You will need to pay attention as the
ongoing trade war saga plays out to
be able to benefit by picking the right
investments but don’t plan on any of
these being investments that let you
sleep soundly at night!
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