China appears willing to endure an economic downturn to ensure the defeat of President Donald Trump in the 2020 election. The goal: a better trade deal under a new Democratic Party president.
"Many investors have expressed the view that China is prepared to accept an economic downturn (and thus a global economic downturn) to prevent President Trump's reelection," according to Naka Matsuzawa, Nomura's chief rates strategist.
Global investors are increasingly warming to this view, which seems to explain China's recent countermeasures to Trump's new tariff pressures. Among these countermeasures is its decision a few days ago to no longer buy U.S. soybeans, which are grown mostly in states that strongly supported Trump in the 2016 presidential election.
American soybean farmers have been hurting since China scaled back purchases in 2018 in response to Trump's first set of tariffs. China's decision to no longer purchase U.S. soybeans ratchets-up the already immense pain being experienced by Trump voters among soybean farmers and the industries that support them. China could extend this fame to producers of other agricultural products.
"(China) could also further curb purchases of (other) agricultural goods, possibly as a means of undermining Trump's support base among rural voters ahead of the November 2020 presidential election," believes Mark Haefele, UBS' global chief investment officer.
China's "weaponization" or devaluation of the yuan on Monday put Trump on notice China will resort to a currency war if pushed into it by the U.S. president. This move brought about the expected designation of China as a currency manipulator by the Trump administration.
This devaluation is fraught with consequences since the devaluation might lead to an exodus of capital. It does, however, hurt U.S. exporters by making the dollar stronger and U.S. exports more expensive and less competitive abroad. Trump has repeatedly protested the strong dollar
"China might be tempted to wait for a change of leadership in Washington," said David Bianco, DWS Group's chief investment officer in a note to investors. "If necessary, China might react with targeted measures designed to endanger Trump's re-election, even at the risk of collateral damage to the global economy and financial markets."
China is adding further pressure on Trump's supporters among the business community by not categorically ruling out a reduction in the benchmark interest rate of RMB loans and deposits of financial institutions. The People's Bank of China said these rumors are untrue but analysts said the PBOC's denial might have been a factor in global equities again falling on Wednesday.
China's "Beat Trump" strategy might backfire if Trump wins re-election. Poll after poll, however, shows him losing to former vice president Joe Biden, but polls remain suspect since Trump was in this same position in 2016.