Trump’s Trade Tremors
Escalating trade protectionism is almost certainly what we should all be worrying about most and helps to explain the latest softness in equities. Mr Trump may claim that he did not start the fight but he seems willing enough to take it new levels. It is not clear whether he understands the C17 Mercantilism of Peter Navarro but he certainly likes its implicit aggression, which is presumably endorsed by the rapacious Wilbur Ross and now the cheer-leading Mike Pompeo. More worrying is the President’s disdain for established protocols and rules, which seems nihilistic rather than reformist. Yesterday came the announcement of the end of the formal Sino-US economic forum that was set up 10 years ago. Mr Trump’s chronic untruthfulness adds to the confusion and uncertainty, which is increasingly spooking other world leaders, businesses and markets. He says he likes ‘winning’ and seems not to care how he achieves it but politics, economics and global markets are much more complicated than the real estate business and the difference between winning and losing is often finely balanced. In a way, Mr Trump has conceded defeat in advance by abandoning the US’s post-war global eminence and seems willing to antagonize traditional allies in Europe and Asia rather than enlisting their support in combatting cyber aggression by China and Russia, which is a much bigger challenge than dumping goods. The chart above shows not only Mr Trump’s trade bogeymen but also the biggest funders of the fiscal deficit that his tax cuts will surely increase. Because of official control of overseas investment in China and Russia (via nominees in various tax havens) the most likely and most harmful retaliation would come from those countries. Like the great power mobilisations in 1914 it may already be too late to stop a cycle of retaliatory trade sanctions and like 2014 everyone will suffer. Having said that, Mr Trump is still at the creating chaos stage of formulating his trade ‘policy’ and it may be that new boy Larry Kudlow will be a moderating influence. The auspices are not encouraging as Mr Kudlow is something of a reactionary on most matters and is already reining back his advocacy of free trade. On a personal note, I suspect he is too affable and modest for the shark pool at the White House. We were colleagues at Bear Stearns at a time he was noted for his humour and for smoking very large cigars rather than snorting cocaine. I remember congratulating him as Chief Economist for an especially prescient call on the FOMC to which he replied wittily: ‘I got it right once in a row!’. Paul Krugman tweeted that at least Mr Kudlow was predictably wrong on everything and, strictly out of fairness, I felt I had to respond that Larry was not that reliable.