Why Trump losing trade war with China could be great for stocks

President Donald Trump is used to making big demands — and in the trade war, those demands might be far grander than anything he’s able to win.

While the president has vowed to curb intellectual property theft and forced technology transfers, free up trade, and wipe out the US’s wide trade deficit with China, Kristina Hooper — the chief global market strategist at $1.2 trillion Invesco — says it’s not going to happen.

“I can’t find any compelling reason why China is going to make any major concessions,” she told Business Insider in an exclusive interview.

Hooper said that Chinese President Xi — who is essentially president for life — can afford to wait out Trump, who is up for re-election next year. At the same time, China’s command economy means its government has more fiscal and monetary tools to counteract damage caused by the trade skirmish.

Hooper said the administration will likely have to be satisfied with an agreement that ends the tariffs of the past two years and reduces the trade deficit, which totaled $621 billion in 2018.

“That is the only concession that I believe China is willing to make,” she said.

While she doesn’t think a resolution will come this year, Hooper said that continued signs of weakness in the US economy would do a lot to get Trump’s team back to the bargaining table with those modest goals.

“The US will have to try to present this as a victory even though it really will fall very far short of the US’s goals in embarking on these tariff wars,” said Hooper.

Read more: Trade fears are making stocks wildly unpredictable. The chief of Wells Fargo’s $1.9 trillion investing business told us how you should play defense in the market.

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As many people on Wall Street have said, there are no winners in a trade war. So Hooper says any conclusion — even one Trump might be frustrated with — will be cheered by the market. It would preserve the US-China trade relationship, the which is the largest that exists between any two countries.

After all, Trump himself commented this week that the Dow Jones Industrial Average might be 10,000 points higher if not for the trade war.

Hooper names Chinese tech stocks as big winners in the trade scenario she’s describing, saying investors dumped the sector because they assumed China would lose the fight. US agriculture stocks would benefit from greater sales to China, and the stocks most vulnerable to tariffs, like automakers and industrials, all look like winners in the her scenario.

“A lot of the industrial companies have been eating the tariffs as opposed to passing them on to consumers and that’s impacting profit margins,” she said.

While that ending of the trade war might be difficult for the Trump team, Hooper said she sees one other big benefit to this outcome, as it might push other countries not to embark on big trade wars.

“Hopefully this provides a cautionary tale for world leaders and there’s more of a focus in the future on reforming the World Trade Organization and really utilizing it as the referee for trade disputes, which was what it was designed to do and what it has been effective in doing,” she said.

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