It's unlikely the white house wants a quick end to its trade war.
Image Attribution: Carlos Herrero
Making America great again is a fundamental part of the US rust belt’s infatuation with Donald Trump.
The President’s most favored way to do this so far has been to regulate trade flows and currencies through the impositions of tariffs, mainly on Chinese imports - and to threaten more and/or higher tariffs.
Many commentators have said that the recent Trump/Xi meeting at the G20 might signal a cease fire in the US/Sino trade war. Some are saying the war is over.
Could the trade war end that quickly?
Hardly. The foes seem to be miles away from balancing their opposing perspectives on what the US says is unfair competition, IP theft and National Security threats that Huawei and others are said to pose to the US. Equally, China is not inclined to rewrite its multi-decade growth plans nor capitulate on its Made in China 2025 aspirations.
In particular, if it was to be solved by a few words at the G20 and US growth was to receive more rocket fuel, US Fed Chair Jerome Powell would be considering increasing interest rates, not decreasing them. That would run counter to the President’s wishes even though the Fed is meant to be dispassionate to those wishes.
Whether or not the President really needs to win a trade war is a separate question and above my pay scale.
However, consider the benefits for the President of a continuing trade war, up to a point:
The only US President since Herbert Hoover to make good on promises to businesses and farmers (i.e., the 1930 Smoot-Hawley tariffs - even though they probably didn’t work so well). Other Presidents have promised, but have back-pedaled once sworn in.
Tariff revenue is being redirected to purchase produce from American farmers, which is then sent off to poorer countries - great for farmers and humanitarian cred.
Whilst tariffs are in place and global growth is constrained there is likely to be a stronger justification (in the President’s eyes) to keep pressure on the Fed to lower interest rates.
With lower interest rates comes a lower USD which is comparatively better for US exporters as it makes their offerings comparatively cheaper.
With lower interest rates comes a rocket fueled equities market, which in light of QE-infinity is just about the only economic forum in which investors can make money. Strong equities is something that the President likes to take personal credit for and one of his key barometers of a healthy economy.
Slow gradual improvements and concessions in the biggest protectionist blitz since the Smoot-Hawley tariffs shows Americans that Donald Trump is the first American leader in nearly 90 years that might actually get the job done.
Let’s face it, if the trade war ends and growth returns, interest rates probably go up and the equities and bond markets run out of steam.
On the other hand, low interest rates for families and businesses, a strong stock market, and a President that’s prepared to continue the good fight to protect American families, could be just what his reelection team needs.
So, before adding more fuel to the market rally because of a few platitudes exchanged at the G20 over recent days, consider the above for a moment.
Mike.
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