/The Tell: The stock market has been rising. Is that why Trump is attacking China?

The Tell: The stock market has been rising. Is that why Trump is attacking China?


With the worst of the pandemic market wreckage likely in the rearview mirror and some signs that the economy may have touched bottom, skittish investors were just starting to breathe easier.

Then came a flare-up of a familiar old tension.

It’s no coincidence that President Trump decided to step up the rhetoric against China just as markets finally were getting comfortable. Nor is it bad timing. In fact, it’s the best possible timing — for Trump — according to one analyst.

“Trump needs China as partner and as villain,” said Steve Blitz, chief U.S. economist for TS Lombard. “He gets cover from the stock market and he thinks he can ramp up the rhetoric and make threats because he’s got the economy at his back and he’s facing an election.”

Blitz mapped out occurrences of news stories with the phrase “U.S.-China” compared with how the stock market has performed over Trump’s tenure. The story count ramped up throughout 2019, in line with the S&P 500
SPX,
+0.48%
,
dropped sharply in early 2020, and, now that an upward move has been sustained, is on the rise once again.

Trump has markets on a string, Blitz thinks. “There’s a line, and I don’t know where it is, but if the market starts to go down that far, he’ll come out and say something conciliatory.”

But it’s also important to note that Trump’s not the only player in this game. “Both sides need each other,” Blitz said in an interview.

In fact, he added, “I think China would prefer Trump (to any Democratic contender.) They have a domestic audience they’re playing to as well. They blame the U.S. for everything and then they cut a deal that they would have cut anyway. They understand that Trump is a transactional president. He really doesn’t care about human rights,” despite the administration’s words to the contrary.

What does it mean for investors?

Blitz put it this way in a research note related to his chart: “The greatest risk, and one we have cited from the beginning of Trump’s administration, is that history has shown repeatedly that rival leaders can lose control of the process. There is a sense that the process may be slipping away from Trump’s control.”

Read next:No, China’s economy hasn’t gotten better. The implications could be more serious than investors realize

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