What Is Trump Up To With All This Tariff Talk
The market is really upset by the Trump Administration’s hawkish trade tariff talk.
But what he’s doing is simple. Trump is just playing for the midterm elections. He has 3~4 months to pull a rabbit out of a hat and impress the voters with his ability to bring home the bacon.
Will it work? Maybe.
You see, Trump is in a position of strength from a negotiating standpoint.
To begin with, Trump is mostly right when he says that U.S. trade agreements are imbalanced.
China does steal technology. It’s trying to acquire and steal more. European tariffs do exceed the U.S.’s.
This makes Trump’s timing for a trade war great: both China and Europe’s economies are slowing and both want and need access to the U.S. market.
Conversely, the U.S. economy is turbo-charged and looks to be able to weather short-term jitters.
But not China. Panic seems to have set in. Chinese KraneShares Bosera MSCI China A-Shares ETF (NYSE: KBA ) is down by about 15% in June. The Chinese stock market fell by $500 billion (B) last week alone. Money is flowing out. (The U.S. stock market fell a similar amount, but our market cap is ~3x that of Hong Kong and Shanghai’s).
Regarding tariffs, Europe doesn’t have many cards to play. It’s why the rumor mill confirmed they will soon be rolling back tariffs.
I believe China will also capitulate. They have to buy agriculture products like soy and hogs. Banning U.S. products means they have reduced supply and will end up paying more for those goods elsewhere.
The U.S. farmer will then sell their soybeans on the global market at a higher price. Meanwhile, the U.S. can easily slow the purchase of smartphones without much pain (sorry Apple).
In a sense, Trump is spending the Summer ripping the band-aid off and letting things heal.
But he is also under the gun.
He has to show results no later than September if he is to win votes in November. And that’s the leverage over him that China and the E.U. have.
There is a pot of gold at the end of the rainbow, but for now, the market will be jittery.
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I would have thought China would be in a better position to weather a trade war than the US.
I think they are . So does Krugman. He said Trump lost. That loss will stick in his craw. If he is reelected I think Trump will divorce China. Again, hoping that does not happen.
A top investor agrees with me! www.marketwatch.com/.../mark-mobius-trump-will-win-the-trade-fight-with-china-and-heres-how-to-play-it-2018-07-03
He would have a better chance had he not upset the entire world. China can forge new alliances with allies that Trump thinks are enemies.
It is pretty clear that history, plus supply chain constrains, will make winning a trade war virtually impossible.
Trump already won versus China. theyve already made a few concessions..auto ownership, offer to buy more products, lower trade deficit.
They are making concessions that won't change what they do. They will never bend to unwind state businesses. They will never stop requiring shared technology as a requirement to do biz in China, Larry. I was unable to answer you a year ago. But shared transfers are only against US law.
Good comment thread here.
I like the photo, very appropriate for the article!
Wouldn't it be better if all Trump's showmanship was more discreet? I feel that all this bluster about tariffs is more about showing his base than achieving real results. Surely there is a better way of negotiating with our trading partners to get a fair deal.
@[Thomas Mitchell](user:6142), that's just #Trump's style. He feels he can get a better deal by being a bully. And if he has the leverage, he is probably right. No one is going to give us a better deal because we're "nice."
That being said, there is much more to diplomacy than negotiating trade deals and Trump has to be careful that he is hurting our long term relationship with important allies like Canada.
I think the media and the trading partners are blowing it up much more than trump is.
Absolutely correct, Lawrence.
And yet here we are 16 months later and the trade war goes on with no end in sight! Doesn't look like the media had it wrong back in 2018.
the currency agreement is based on provisions in the U.S.-Mexico-Canada Agreement trade deal, which require the three countries to disclose monthly data on international reserve balances and intervention in foreign exchange markets, along with quarterly balance-of-payments data and other public reporting to the International Monetary Fund:-reuters quoting trump official
It's interesting that this old article suddenly has this flurry of new comments. I keep seeing them on the homepage.
I agree with you @[Thomas Mitchell](user:6142).
No end in sight? They're about to sign a deal on 60 percent of the issues and the tariff escalation has stopped. What crazy news are u reading?
Lawrence. I'm still waiting for a trade deal. Still no end in sight, I thought Trump said "trade wars were easy to win". Glad it is so easy, hate to see the fall out if it was hard. The Chinese may have just up the ante with the recent decision to replace all American PC's and Windows software by 2022 with Chinese technology. So much for that market by American tech companies.
from reuters: The deal includes stronger Chinese legal protections for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods. The deal contains commitments by China to follow through on previous pledges to eliminate any pressure for foreign companies to transfer technology to Chinese firms as a condition of market access, licensing or administrative approvals and to eliminate any government advantages for such transfers. The deal contains commitments by China to follow through on previous pledges to eliminate any pressure for foreign companies to transfer technology to Chinese firms as a condition of market access, licensing or administrative approvals and to eliminate any government advantages for such transfers.
I cannot believe China will stop tech transfers. It is not against international law. It won't be a change in Chinese law.
Oops you were wrong. So was the media. So was...as usual, leftist conventional wisdom.
Please clarify.
Lol.
Perhaps, but perhaps not. It won't be the first time that #Trump was on the verge of a #tradewar deal.
You are probably right Larry.
Good article. I have to admit, this is where #Trump excels. He has a knack for finding and exploiting weakness in others and using that to his own advantage. Whether you like Trump or not, I think it is worth letting this play out.
We hope it plays out with compromise, otherwise it would be better not to play it out at all!
I think the issue is that the market is increasingly unnerved about his apparent instability even though it is more likely planned political posturing.
What evidence is there that his actions are unstable?
I mean more the instability he is causing in the market with his proposals, not his state of mind. As you probably know, changes and threats of changes naturally disrupt markets despite whether they are for the good or not. That's why shaking them unnecessarily is not, in general, a good policy.
It appears to be planned. That is no guarantee that it is systemic or not subject to his passion for "winning".
I agree that it does seem to me that much of #Trump's motivations stem for his need to simply always come out on top.
Yes Angry Old Lady, likely as a way to compensate for #Trump's other insecurities such as his small hands ;-)
Great column! I agree with all of your points!
In order for Trump to win, he will have to win very little.
What do you mean?
Trump got very little from China. He really is stalling. He wants to divorce China if he wins the election. That is my opinion until, hopefully, he proves me and others wrong!
China and US trade are a bit too intertwined to be easily divorced.