Features

Trump thumbs his nose at global trade

The protectionist president pulls up the drawbridge. What could go wrong? Emily Hohler reports.

886-Trump-634
Trump: "trade wars are good and easy to win"

The reaction against Donald Trump's new steel and aluminium tariffs has been widespread, "fast and negative", says The Wall Street Journal. Roberto Azevedo, director-general of the World Trade Organisation (WTO), warned that "an eye for an eye will leave us all blind, and the world in deep recession", while key allies including the EU and Canada have threatened to retaliate.

The move put him at odds with Treasury Secretary Steven Mnuchin and his top economic adviser Gary Cohn, who resigned over the issue on Tuesday night, say Shawn Donnan and Sam Fleming in the Financial Times. Congressional Republicans, led by House Speaker Paul Ryan, who warned Trump in person of the economic dangers of a trade war and a political backlash that could "crush" the Republicans in the mid-term elections, have been making an "11th-hour push" to walk Trump back from the brink, report Rachael Bade, Burgess Everett and Doug Palmer in Politico.

Getting ready for battle

Yet Trump is unrepentant. On Friday he tweeted that "trade wars are good, and easy to win" and on Monday added "We're not backing down." He also implied that he wants to use the tariffs as a bargaining chip in negotiations with Canada and Mexico over the North American Free Trade Agreement (Nafta), says Emily Stewart in Vox. "We have large trade deficits with Mexico and Canada," Trump tweeted. "Tariffs will only come off if new & fair Nafta agreement is signed".

Trump was given the "green light" on tariffs by Commerce Secretary Wilbur Ross and his trade specialists, notably Robert Lighthizer and Peter Navarro, both "dyed-in-the-wool protectionists" who have "never seen a tariff or quota they didn't fall in love with", says Steve Hanke in Forbes. But their belief that "tariffs and tough talk" will close America's long-running trade deficit displays "profound economic ignorance".

It does, agrees Oliver Kamm in The Times. Trump maintains the deficit is proof that America's trading partners, notably China and Germany, are "engaged in unfair trade practices". The deficit has "nothing to do with other countries' trade policies; it arises because Americans don't save much". Trump's tariffs will do nothing to increase savings.

What they will do, however, says The Wall Street Journal, is "punish American workers". Trump "seems not to understand" that American steel-using industries employ around 6.5 million Americans, while steel makers employ around 140,000. Domestic producers will simply raise their prices, with additional profits flowing to executives and shareholders that is, until those prices hurt their steel-using customers as well.

Then there's the "diplomatic damage", made worse by Trump's spurious use of Section 232 to claim a threat to national security. Such an argument is "preposterous" since China supplies just 2.2% of US steel imports. Canada that "menace to world peace" supplies 16%.

A threat to the world

Yet the "systemic impact of the US thumbing its nose at the global trading system" is the worst part of this move, says Arthur Kroeber in Gavekal Research. Trump's emboldened trade warriors may proceed to "more unilateral trade actions" such as withdrawal from Nafta or more targeted action against China.

The irony is that most other countries would have been happy to join a US-led effort to "restrain Chinese mercantilism and fight for greater market access in that highly protected economy". Now they may wonder whether it is "really China or the US that poses the greater threat to the world trading system".

Putin's nukes: aiming closer to home

"Like Blofeld, but with a larger audience", Vladimir Putin "warned the world that he could destroy it if provoked," says The Times. His state of the nation address in Moscow last week, which included an animated video in which multiple warheads were apparently heading for Donald Trump's holiday mansion in Florida, would have been comic had its subject not been so serious.

Putin claims that this system can "penetrate any anti-missile defence to strike anywhere in the world within an hour". While similar claims have been made before, there is "little doubt" that Russia has made progress. There is even less doubt that the "two former Cold War adversaries are drifting back" into a dangerous arms race.

Terrifying though it all sounds, these revelations "don't actually change the balance of power between Russia and the US in any meaningful way", says New York magazine. Even without Russia's military innovations and Trump's wish to "spend $1.2trn modernising and expanding the US nuclear arsenal", both countries "already possess enough atomic firepower" for a nuclear exchange" to wipe them both "off the map" and cause the "collapse of human civilisation as we know it". The Russian weapons we should really concern ourselves with are the ones it is already using: cyberweapons.

This speech was targeted just as much at a domestic audience, says James Cameron in The Washington Post. The first round of Russia's presidential election takes place on 18 March and, although nobody doubts that Putin will win a fourth term, "Russian officials are reportedly worried about a low turnout from an apathetic public".

With little on the domestic side likely to entice voters to the polls, Putin's "nuclear claims help bolster his established narrative that he has restored Russia's greatness after years of humiliation". He has even launched a public competition to name a new cruise missile and unmanned underwater vehicle.

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Covid-19: Second wave grows as US election nears
Stockmarkets

Covid-19: Second wave grows as US election nears

The second wave of Covid-19 is buffeting global stock indices, while US markets remain focused on the presidential election polls.
29 Oct 2020
Does it really matter who ends up in the White House?
US stockmarkets

Does it really matter who ends up in the White House?

Whoever wins the US election – be it Joe Biden or Donald Trump – is likely to spend piles of money to drive the recovery from Covid-19.
29 Oct 2020
Trump’s economic legacy
US election

Trump’s economic legacy

If the polls are right, Donald Trump will not be president of the United States for much longer. But right or not, what did he manage to achieve in th…
29 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Don’t miss this bus: take a bet on National Express
Trading

Don’t miss this bus: take a bet on National Express

Bus operator National Express is cheap, robust and ideally placed to ride the recovery. Matthew Partridge explains how traders can play it.
19 Oct 2020
Three stocks that can cope with Covid-19
Share tips

Three stocks that can cope with Covid-19

Professional investor Zehrid Osmani of the Martin Currie Global Portfolio Trust, picks three stocks that he thinks should be able to weather the coron…
12 Oct 2020