CNBC’s Jim Cramer on Monday said the verbal agreement United States trade negotiators struck with China breathed new hope into Wall Street.
“The trade deal mattered. I know the Chinese government has a history of reneging on all sorts of agreements, but somehow this one feels different,” the “Mad Money” host said.
Cramer likes the carrot-and-stick approach that the Trump administration is taking in the negotiations. The two countries last week announced that they had reached a “phase one” trade deal in principle, about 18 months after the start of the trade war. The U.S. agreed to roll back some tariffs, and China promised to make more agricultural purchases.
Cramer pointed out two factors that make the progress in trade talks feel different from deals that were often teased earlier this year: pork and the threat of higher tariffs.
As the country grapples with African Swine Fever, which has caused pork prices to skyrocket 110%, China last month dropped a ban it had in place on American hog imports. Cramer said, “For once we actually have something that the People’s Republic needs.”
“Pork is a staple of the Chinese diet, and the country is ill-prepared for this scourge,” he said. “Unlike grains or soy, the United States is the only country with enough pork production to actually meet China’s needs. We’ve got the upper hand, people.”
“Long story short: They have every reason to follow through this time with their proposed agriculture purchases. Not buying our pork would hurt them a lot more than it hurts us,” he added.
Chinese President Xi Jinping delivers a speech during a session of the St. Petersburg International Economic Forum (SPIEF), Russia June 7, 2019.
Maxim Shemetov | Reuters
On Friday, Trump told reporters that China would make good on its commitment to buy $50 billion of U.S. farm products “pretty soon.”
While the U.S. gave China some tariff relief by tabling a new round of duties and cutting some existing levies in half, President Donald Trump has a “harsh enforcement mechanism” in his toolbox, Cramer said.
“But if China doesn’t follow through, those tariffs will come right back to life in a couple of months,” Cramer said. “Remember Ronald Reagan’s ‘trust but verify’ attitude toward the Soviet Union? I think this trade deal works the same way.”
With the help of a strong domestic economy, Cramer said, the U.S. can maintain the upper hand in the ongoing trade negotiations. Furthermore, Trump’s tariffs on China pushed a range of American companies to move their factories out of the country to avoid paying additional costs, putting more pressure on Beijing.
That has left China’s economy in a more precarious position, Cramer said.
Back in the U.S., though, the major stock indexes all surged to new highs in Monday’s session. The Dow Jones Industrial Average closed at 28,235.89, the S&P 500 reached 3,191.45 and the Nasdaq Composite broke past 8,814.
“It’s strange to see the market react so simply to such obvious news like the China deal, but this is a market that thrives on certainty and certainty is what we got on Friday evening,” the host said. “I say thrive away, but remember if we get too overbought — and we’re getting there — I reserve the right to say ‘take some profits and wait for lower prices.'”