US indices closed little changed on Friday after the first negative week of 2019. Markets are nervous, with good reason: There are too many moving parts in the political environment that can go wrong.

If you haven’t already, it’s a good time to take profits on the January rebound and wait for clarity.

I’ve argued since last October that China would go out of its way to give President Trump a trade deal he could hail as a victory. Trump wants to go into the campaign for the 2020 election with a victory, and China is happy to buy whatever the United States wants to sell, and to open its market to foreign financial and automotive firms, and wait until it is too large to be bullied.

My optimism about a China trade deal depended on an important premise, namely that the United States and China would keep the issue of 5G technology on a separate track. After the past week’s escalation of US pressure against Chinese telecom equipment providers, that premise can’t be taken for granted.

There was another premise to my upbeat reading, namely the assumption that China was happy to help Trump succeed in return for a return to the status quo ante on tariffs. The fact that presidents Trump and Xi will not hold a summit before Trump’s March 1 deadline for a hike in tariffs to 25% from the present 10% raises a question.

Trump looks a lot weaker now than he did at year-end and China may decide to test his resolve.

Trump made a grave tactical error in provoking a government shutdown over funding for his proposed border wall. The Democratic-controlled Congress has every reason to deny Trump a victory. House Speaker Nancy Pelosi stands to gain from a prolonged government crisis, which will hurt the US economy and provoke market volatility.

Trump will run for re-election on his economic record and will take the blame or credit for future economic performance. Negotiations on Sunday for a budget deal broke down and Trump denounced the Democrats via Twitter for “behaving, all of a sudden, irrationally.”

Sadly, there’s nothing irrational about Pelosi’s tactics. She wants to humiliate Trump by forcing him to back down from the border wall, or push him into yet another government shutdown, and let him take the blame for the damage.

With American politics more polarized than at any time since the Civil War, the danger of government dysfunction is real.

Trump in my view has overplayed his hand by demanding that American allies exclude Huawei from new 5G broadband networks. The German government has made clear – as the daily Handelsblatt reported on Friday – that it has no basis to exclude the Chinese telecom giant, which has a dominant position in 5G technology, and the French and Italians have given similar indications. 

Deutsche Telekom and British Telecom have both stated that they have no evidence of security problems with Huawei equipment and want to continue to rely on the Chinese company. 

But that is not how the Trump Administration sees the matter. My sources say that key Trump advisers are confident it can apply sufficient pressure on America’s allies to persuade them to boycott Huawei.

The US ambassador to the EC, Gordon Sundland, told Bloomberg on Thursday: “Those who are charging ahead blindly and embracing the Chinese technology without regard to these concerns may find themselves in a disadvantage in dealing with us.”

Of course, the term “key Trump advisers” is something of an oxymoron. Trump’s is the only opinion in the White House that matters, and I don’t know what he thinks about this. He reportedly will issue an executive order excluding the Chinese telecom equipment producers from US mobile networks, but that is largely symbolic at this stage.

If the Europeans refuse to accept American demand, it might complicate the European Commission’s upcoming negotiations with the US over auto tariffs, for example.

——

Asia Times has relaunched on www.asiatimes.com. Download our brand new native App for a sweeping selection of geopolitical and business news from across Asia.