On Tuesday 6 March, at a news conference alongside Sweden’s Prime Minister Stefan Löfven, President Donald Trump broadcast that his promised tariffs on steel and aluminium imports (25% on steel, 10% on aluminium) would be applied in a “very loving way”. Following this, Gary Cohn, President Trump’s top economic adviser, announced that he would resign, becoming the latest in a series of high-profile departures from the Trump administration.
Although White House officials insist that Cohn’s exit is not due to a single factor, commentators have noted that it came soon after he opposed the administration’s planned tariffs.
Impact on tradeMarley Jay for
USA Today writes that stocks fell in the morning following Cohn’s departure announcement, and losses deepened after Trump suggested, on Twitter, that the US may impose penalties on China as part of intellectual property disputes.
Jay quotes Keith Parker, US equity strategist at UBS: “[Cohn] was seen as a key proponent of free trade to balance some of the other more protectionist-type advisers in the administration.”
After the White House announced some countries may be granted exemptions (Canada and Mexico), the market bounced back.
The S&P’s 500 index fell as much as 1% during the day, but finished with a loss of 1.32 points, less than 0.1%, and the Dow Jones industrial average declined 0.3%. Nasdaq composite gained 0.3% and the Russell 2000 index added 0.8%.
USA Today suggests the latter two are more US-focused and “stand to lose less from a flare-up in global trade tensions”.
In response to Trump’s announcement, the EU has proposed tariffs on US exports, including motorcycles and Bourbon, and Jack Daniel’s has forecast a smaller-than-expected annual profit and its stock dropped 5.6%, while Harley-Davidson slid 1%.
Jay writes: “While most investors interpreted the departure of Cohn as a loss, Parker said his resignation might keep some of the administration's protectionist plans in check when combined with criticism from Republicans in Congress and the generally negative stock market reaction.”
USA Today article
Concern from the World Trade Organisation The World Trade Organisation (WTO) Director-General Roberto Azevêdo said that there is a risk of a trade war as a result of the announcement, reports Julia Manchester writing for
The Hill.
The report quotes Azevêdo: “In light of recent announcements on trade policy measures, it is clear that we now see a much higher and real risk of triggering an escalation of trade barriers across the globe. We cannot ignore this risk and I urge all parties to consider and reflect on this situation very carefully. The potential for escalation is real, as we have seen from the initial responses of others.”
However, “White House trade adviser Peter Navarro ‘ripped’ the WTO in an interview on Sunday”, saying that a lot of the problem has been the WTO, many countries of which “simply don’t like [them]”.
The Hill article
Have we already hit ‘peak trade’?However, UBS’s chief global economist Peter Donovan says the world may have hit ‘peak trade’ even without Trump’s tariffs, writes Natasha Turak for CNBC. Donovan points to robotics, digitisation and localisation as game-changers, and that trade protectionism has been rising for some years.
Donovan argues that the peak trade argument is based on “a reversal of the structural way in which globalisation took place in recent years”. For example, globalisation means long cross-border supply chains, resulting in a rise in the value of global trade as a proportion of GDP for each country. But, now, producing locally has become much more efficient.
And Donovan thinks this is how supply chains will continue. “I think global trade in goods (not services) will revert to something like the old 'imperial model' of importing raw materials and then processing close to the consumer,” he told CNBC.
Turak adds: “Since 2009, countries have implemented more than 7,000 measures considered detrimental to global trade, with more than 1,300 coming from the US – long before Trump took office.”
Have we already hit peak trade, and the new announced tariffs are just another by-product of a reverse in the structure of globalisation already in place?
CNBC article
Seen a blog, news story or discussion online that you think might interest CISI members? Email bethan.rees@wardour.co.uk.