The key take-away from the phase one trade pact with China which U.S. President Donald Trump announced last week is that it is in fact phase one of one. There will be no phase two because of how Chinese President Xi Jinping played Trump.
Trump got none of what he really needed. Xi now knows how to navigate around his demands to stop subsidizing state-owned enterprises. He has a road map for deflecting calls to halt forced technology transfers. He also has firsthand experience of how to keep Trump away from Xi's Made in China 2025 domestic manufacturing plan.
The agreement came at great cost to the U.S., too. The tens of billions of dollars of bailouts Trump has lavished on farmers suffering from his trade war, for example, were twice the size of those predecessor Barack Obama deployed to save the U.S. auto industry in 2009. Worse, economist and Nobel laureate Paul Krugman says, "Trump has made us weak, neither trusted by our allies nor feared by our enemies."
If Trump got so little from Xi while exerting "maximum pressure," we should expect even less success when the U.S. ratchets up tensions anew. And make no mistake about it, things will flare back up early and often in 2020 as impeachment peril and slowing growth lengthen Trump's reelection odds.
Events in Thailand show just how sincere Trump is about trade peace.
In October, Thailand decided to ban three agrochemicals: the pesticide chlorpyrifos and the herbicides paraquat and glyphosate. That would have aligned Bangkok, in some respects, with the EU's concerns about health effects.
Not so fast, said the White House. Fearing the move would significantly curtail U.S. agricultural exports, Trump took aim at, you guessed it, the kingdom's trade. The administration announced a suspension of tariff exemptions on everything from seafood to motorbikes.
Laughably, Team Trump tried to blame its move on weak labor standards in Thailand. Economists know it is really a growing trade surplus that is putting Thailand, which had until now avoided Trump's trade wrath, squarely on the White House's radar.
It also is a reminder that Washington's deal with Beijing is merely the calm before the Trumpian storm to come. Trump is raring for another go at China -- and the rest of Asia, to boot.
This puts multinational companies in an impossible position. On the one hand, decisions about investment, staffing, capital raising, where to source materials from or where to manufacture goods have rarely been harder.
Any CEO who thought Thailand might be a good refuge from the trade war now has to reconsider. The same goes for multinationals moving production from China to Vietnam, another place Team Trump is threatening with levies and currency-manipulator labels.
As Trump seeks to rally his base, bashing China, Japan, South Korea and other nations he claims are "taking advantage" of Americans will be his default. His fragile ego, for example, is still smarting over markets ignoring an October U.S.-Japan trade deal.
Nor did Trump's renegotiation of the U.S.-Korea free-trade pact, which had been in effect since 2012, win many plaudits. Hence his return for a second helping -- this time targeting long-standing military arrangements with an attempted increase in the bill for hosting U.S. troops of nearly 400%.
Such pressure is sure to grow as Trump's "love" for Kim Jong Un ends badly. When North Korea increases missile tests, Trump will be desperate to deflect blame and save face. This puts President Moon Jae-in's economy directly in harm's way.
While Trump looks to rally domestic support, he may very well pull the trigger on 25% taxes on imports of cars and auto parts. The epic disruption in Asian supply chains would hit Japan hard, too.
Dollar uncertainty does not help. As his legal troubles mount and an election looms, Trump could easily order a sharp downward exchange rate adjustment. If you think he will be limited by language in a U.S.-China deal banning currency shenanigans, you are dreaming.
Over the last two years, the U.S. has waged a trade battle without a plan. No clear objective was set. There was no blueprint for achieving whatever Trump might desire. Nor have there been details on what cost Washington is willing to pay. This is as much about incompetence as Trumpian psyche.
Trump thinks the fight against China is a winner domestically, and there are myriad opportunities to raise the geopolitical stakes. Hitting more Chinese tech champions? Threatening sanctions on Hong Kong? Pursuing a trade deal with Taiwan? An Oval Office invite for the Dalai Lama? Targeting Thailand, Vietnam and other smaller economies? Count the ways.
The year ahead will be a losing year for investors falling for a trade "deal" that puts Washington and Beijing back to square minus-one.