The Trump Trade Slump May Yet Happen: DealBook Briefing
"Trump's Trade War Is Already Hurting American Whiskey Distillers"
JUNE 1, 2018
Credit Jim Watson/Agence France-Presse — Getty Images
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Here’s what we’re watching:
• Trump broke with protocol by tweeting about jobs report
• Investors have compared Facebook’s actions to human rights violations
• Deutsche Bank can’t catch a break
• Goldman’s consumer finance plans are bigger than you thought
Will a strong economy convince Trump he can win trade wars?
Before Donald Trump became president, many feared that the combative trade policies he was proposing would sock the U.S. economy and send unemployment higher.
It probably won’t go unnoticed in the White House that the day the Trump administration’s metals tariffs went into effect .. https://www.nytimes.com/2018/05/31/us/politics/trump-aluminum-steel-tariffs.html .. against many of the United States’ largest trade partners, the government reported the unemployment rate fell to 3.8 percent in May, an 18 year low.
Is this unexpected state of affairs sustainable?
If anything, the strength of the economy might persuade Mr. Trump that he can pursue his trade agenda without causing too much collateral damage at home. That could mean following through on his threats to impose tariffs on Chinese products totaling as much as $150 billion.
Whether Mr. Trump does so should become clear soon. On June 15, the administration is scheduled to release a final list of $50 billion of Chinese goods subject to tariffs, which would then be imposed shortly thereafter.
Some in the administration have warned that a protectionist trade policy could drag the economy and the stock market. But the longer the economy keeps churning out jobs, and the longer the stock market remains resilient, the harder it will be for those advisers to make their case. Indeed, the U.S. may be less sensitive to trade frictions than economists and investors previously believed.
But that is a very optimistic scenario, and much could still go wrong.
The metals tariffs, alone, are unlikely to crater the markets or hammer the economy. But a full-blown trade war with China, involving $150 billion of tariffs and everything China has promised in retaliation, would almost certainly shake the confidence of investors and businesses. Tomasz Wieladek, an economist at Barclays, in a report on Friday said the metals tariffs and those against China, along with retaliatory actions, could knock nearly a full percentage point off global growth.
The fact that the stock market hasn’t gone anywhere since mid-February,when the trade rhetoric heated up, suggests investors never really shrugged off the prospect of trade wars. Now, as a confrontation with China approaches, markets may become volatile as investors prepare for the fallout.
It’s also important to remember that the strength of the economy is not an unalloyed positive. If the buoyant conditions, and the impact of new tariffs, produce higher inflation, the Federal Reserve will have less leeway to relax monetary policy in response to a big trade shock or a stock market plunge. In other words, investors would have no protection from the Trump administration’s policies.
One way to view the current situation is that Mr. Trump is an opportunist who has astutely ridden an economic expansion that had long been underway – and is now hoping it will carry him through a drawn-out trade battle.
It’s a bold, far from certain, bet.
—Peter Eavis
Trump broke with protocol by tweeting about the jobs report
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