‘When the dust settles, there will be some realization that this is not a fundamental breakthrough — that the conflict will be enduring. Take profits very quickly, which would be my sense.’
That’s Stephen Roach, Yale University senior fellow and former Morgan Stanley MS, +0.58% Asia chairman, talking on CNBC’s “Trading Nation” this week about the fallout from a U.S.-China trade deal.
A critic of the White House’s tariff strategy, Roach said he doesn’t see a resolution having any kind of meaningful impact on trade between the two countries. While China would likely agree to multiyear purchases for agriculture, soybeans and energy, he said doesn’t believe that will be enough to satisfy investors.
“The bulk of the progress will be on the bilateral trade front, which, quite frankly, as an economist I find the least appealing because that’s really a reflection of our own macroeconomic imbalances,” Roach said. “If we can squeeze the Chinese piece, that’ll just send those goods to another higher cost producer. So this is sort of a cosmetic deal, at best. But it’s a deal, and it’s better than nothing.”
The tariffs aren’t the cause of China’s economic issues, he explained, adding that he believes the country’s officials are injecting enough fiscal stimulus to deal with the slowdown. So, while Roach does see a deal getting hammered out next month, it won’t be because China feels it has to.
“I don’t think they’re in desperate shape,” he said. “The downside pressures are transitory; they’ll be able to stabilize and then show some gradual improvement.”
Watch the interview:
Not much selling going on Thursday, with the Dow DJIA, -0.06% Nasdaq COMP, -0.20% and S&P SPX, -0.10% mostly bouncing around breakeven.
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