- China's economic weakness raises the odds for a U.S.-China trade resolution, CNBC's Jim Cramer argues.
- China announced Monday that, in 2018, its economy grew at the slowest pace in 28 years.
- If a trade deal is struck and interest rates stay low, then stocks could have more upside, says the "Mad Money" host.
China's slowing economic growth could pave the way for its government to reach a trade agreement with the United States, CNBC's Jim Cramer said Tuesday as the major averages dropped on worries about weaker global growth.
Stocks fell sharply in Tuesday's session following China's announcement that, in 2018, its economy grew at the slowest pace in 28 years. Additional pressure came from the International Monetary Fund slashing its global economic growth forecast for 2019 and 2020 and reports that signaled ongoing tensions between U.S. and Chinese trade officials.
The IMF's forecast cut said a few things about the state of the world's economy, Cramer said. In her decision, the organization's chairwoman, Christine Lagarde, cited a slowdown in Europe. Beyond the obvious pressure from Brexit, that weakness could be tied to China because of how many European companies do business there, Cramer said.
Specifically, it could lead to some important concessions from Chinese authorities, the most significant being an acknowledgment of China's alleged intellectual property theft, the longtime market-watcher explained.
"At a certain point, it's cheaper for the Chinese to just change their policy and stop making it easy for their companies to steal American intellectual property," Cramer said.
"I bet their government is actually, right now, trying to find a way to show us they'll respect our IP and let our companies operate independently in China, a sticking point [that] Larry Kudlow, the president's chief economic advisor, made today," he continued. "It's not a perfect solution for the People's Republic, but considering what the tariffs are doing to their economy, ... they may not have a choice."
If a trade deal is struck, and U.S. Federal Reserve Chairman Jerome Powell heeds the IMF's guidance and stays patient on interest rate hikes, then things could really look up for the domestic stock market, the "Mad Money" host said.
"If we do get a trade deal with China and rates stay low, this market could roar higher, at which point our economy could handle a couple more rate hikes," Cramer said.
"That said, at the moment, we have no trade deal and ugly data about the world economy, which means the Federal Reserve should be a lot less likely to raise interest rates in the near future," he said. "It is just too dangerous, and even Jay Powell knows it."