Trump's victory in the Mueller probe could make him take a tougher stand in China talks

  • President Donald Trump's triumph in the Russia collusion investigation could embolden him enough to take a tougher stance on China trade talks.
  • Getting a China deal done would eliminate a major unknown for the markets and economy.
  • "Now that he's got this victory, it makes him less desperate for a deal. Maybe he can get a little tougher on the Chinese," strategist Greg Valliere at AGF says.

President Donald Trump's resounding triumph in the Russia collusion investigation is set to reverberate into policy, with the most likely first impact the looming trade negotiations with China.

With the release of a summary of Robert Mueller's report on his two-year investigation, a previously reeling Trump no longer looks as desperate for a policy win of any sort.

"It sure looked a month ago like he really badly needed a victory. I thought he would take virtually anything on trade," said Greg Valliere, chief U.S. policy strategist at AGF and an expert on the political ramifications on financial markets. "Now that he's got this victory, it makes him less desperate for a deal. Maybe he can get a little tougher on the Chinese."

The timing couldn't be better for Trump.

Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer are off to China this week to continue negotiations over multiple trade-related issues. The two sides have been at loggerheads and involved in a tit-for-tat tariff battle that has been suspended while the negotiations continue.

Financial markets have been nervous over the progress of talks, and Wall Street largely has been hoping the issues could be resolved by the end of the month.

However, the potential that Trump could feel emboldened by the apparent conclusion from the Mueller report that the president's campaign did not collude with Russia might delay progress with China.

"Although it is too early to tell, the developments are likely to increase the stickiness of the administration's policies for the foreseeable future," Ed Mills, public policy analyst at Raymond James, said in a note. "This may serve to lengthen the runway for the completion of a deal with greater concessions from China."

The Mueller report and the China negotiations were thought to represent two of the key unknowns for corporate executives and investors. After 2018 saw the best economic growth of the expansion that began in mid-2009, 2019 started off with a high level of uncertainty, particularly over the effects that slowdowns in Europe and China will have on the U.S.

With an election year right around the corner, Trump also will need to shore up his base, much of which exists in the heartland and among the farmers who have taken a substantial hit from the China tensions. China also has suffered by losing a key market for its exports.

"Both sides have incentives to reach an agreement," wrote Tom Block, head of research at Fundstrat Global Advisors. "China's economy has been slipping and an end to mounting US tariffs would be a significant boost. For the US, all roads for a Trump 2020 victory lead through a solid red farm belt."

Those looking for a resolution, however, may have to be patient.

"For people who were hoping for a quick trade deal, prospects have slipped that we'll get anything done quickly," Valliere said. "This could drag on a little bit more than the market had anticipated."