I believe Trump is keeping all his promises that he made during the 2016 Presidential election campaign. He is also unwinding policies that he perceives as being failed policies by his predecessors. NAFTA was passed under Bill Clinton and Al Gore. The deal with South Korea a few years ago was negotiated by the Obama administration and Hillary Clinton.
I remember seeing this picture (via Twitter) of Steven Bannon in front of a whiteboard with a list of action items. They wrote down all the “promises” that Trump made during the campaign.
President Trump is going through his action list just like any strategy team at every business or startup would do. The market shrugged off all the political discourse last year. Global markets were up over 20% last year.
This brings us to today’s announcement with regards to the potential tariffs on steel and aluminum. In September 2016, Trump laid out the “Trump Economic Plan” which can be found in its entirety here:
I pulled a few excerpts from the white paper that I thought would be worth noting. The paper was written by Peter Navarro and Wilbur Ross.
On trade policy:
In contrast, Donald Trump views America’s economic malaise as a long-term structural problem inexorably linked not just to high taxation and over-regulation but also to thedrag of trade deficits on real GDP growth. Trade policy factors identified by the Trump campaign that have created this structural problem include: (1) currency manipulation,(2) the equally widespread use of mercantilist trade practices by key US trading partners,and (3) poorly negotiated trade deals that have insured the US has not shared equally inthe “gains from trade” promised by textbook economic theory.”
With regards to tariffs:
“Tariffs will be used not as an end game but rather as a negotiating tool to encourage our trading partners to cease cheating. If, however, the cheating does not stop, Trump will impose appropriate defensive tariffs to level the playing field.”
According to the Axios article, Gary Cohn and other advisers are against tariffs and have cautioned Trump on imposing them. However, Trump (keeping his campaign promise of stopping China from “cheating” the US) wants tariffs or at least use them as a bargaining chip in negotiating new trade deals.
Initial reaction from China (emphasis mine):
Wang Hejun stressed that the US aluminum enterprises have initiatively withdrawn from the production of low added-value aluminum foil twenty years ago and turned to aluminum products with high profits. Therefore, the drop of output and market share of US aluminum foil is the busine
ss choice of American enterprises , not caused by imports. The unreasonable and excessive use of trade remedy measures will not realize the renaissance of US aluminum foil industry but will affect its domestic employment and impair the interests of US consumers. The Chinese side will take necessary measures to uphold our legitimate rights against the wrongdoings of the US side.
At this moment, we don’t know if the tariffs will be from all countries or only imposed on China. As of right now, it is just a threat. Markets didn’t seem to like this at all. With the major averages ending the day down double digits and the futures pointing to a decline.
The tables below are import and export figures from the World Steel Association for 2106. The United States is a net importer of steel which contributes to the trade deficit. Trump promised to try and close that gap. He also believes we can get to higher growth if we do.
The last time a tariff was assessed on steel was in March 2002 under the Bush administration. Bush cited that he wanted to help out the steel industry by increasing the cost of cheap steel imports and unfair trade practices. Steel stocks got a quick bounce off the news but continued their downtrend well into 2003.
Today, we get this news of tariffs and trade wars in the midst of heightened volatility, we also had a whiff of this last year, but the market shrugged off any bad news. Just Google: “trade war 2017” and you see countless articles on a brewing trade war. We are currently in a short-term downtrend as markets have not made new highs since the 10% correction; however, the longer term trend has yet to be breached. As I wrote a couple of weeks ago, the market is no longer dull. Traders are happy that the volatility is back. Stay disciplined out there.