In the span of just six hours on Thursday, President TrumpDonald John TrumpDeWine tests negative for coronavirus a second time Several GOP lawmakers raise concerns over Trump executive orders in Beirut after testing test for US aid to frustrated ally MAY took two major trade actions: re-imposing aluminum tariffs on Canada and imposing restrictions on the use of two major China-based apps.
The moves both surprised and worried traders.
For most of this year, Trump has shut down the escalating trade wars that greatly reduced much of his presidency in 2018 and 2019. Experts are now worried that his aggressive and seemingly unexpected actions on trade ahead of the election risk will stifle an economy already reeling from the pandemic.
“This recent outbreak of action reflects a decision by the Trump re-election team that they need some very clear messages to win a chance,” said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics in Washington.
“This will be an ongoing and escalating drama until the election, and maybe until January 20,” he added.
Trump, who drove a wave of trade sentiment to the White House in 2016, appeared to be turning a corner in the past year, from finalizing the U.S.-Mexico agreement to Canada to signing the “Phase One” – treaty with China in January.
But with interviews showing him subsequently presumptive Democratic nominee Joe BidenJoe BidenBiden says Trump’s executive mission is ‘a reckless war on social security’ Trump entered into test exchange with top GOP donor Adelson: Blumenthal report calls for declassification of materials detailing Russian threat to US elections nationally and in major battlefield states, Trump has rekindled the heat of trade.
Speaking at a Whirlpool factory in Ohio on Thursday, he announced the re-position of the aluminum tariff about Canada.
“Several months ago, my administration agreed to lift those tariffs in exchange for a promise from the Canadian government that its aluminum industry would not flood our country with exports and kill all our aluminum jobs, which is exactly what they did,” “said Trump.
Hufbauer characterized Trump’s movement as political posturing more than providing an economic advantage to the US
“The aluminum tariff does not have the support of the business community in the US, including the aluminum producers,” Hufbauer said.
Canada reacted quickly to Trump’s announcement, imposing its own counter-tariffs on U.S. aluminum products.
More ominously, Trump indicated that there was something bigger in the works.
“I will probably sign something next week. And it will have a huge impact on honesty and trade, ‘he said Thursday.
On the same day, he announced executive orders that would ban China-based apps TikTok and WeChat in late September, part of a series of escalations with China involving Secretary of State Mike PompeoMichael (Mike) Richard PompeoBeirut drags test for US aid to frustrating allies Advocacy groups come out against Trump elects ambassador to Germany US pledges million in disaster relief to Lebanon MORE formally rejecting Beijing’s claims on the South China Sea.
“That action was not separated at all by the trade war,” said Peter Cecchini, founder of AlphaOmega Advisors, referring to Pompeo.
The South China Sea, noted Cecchini, is a major shipping route.
Trump’s target of Canada and China in quick succession drew some criticism from Capitol Hill, especially since Canada is seen as a trusted ally and neighbor.
“President Trump is right to continue to confront China for its unfair trade practices,” Speaker of the House of Representatives Chuck GrassleyCharles (Chuck) Ernest GrassleyMcConnell hands-off over coronavirus delivery bill GOP chairmen retaliate over accusation of spreading disinformation with Biden probe On The Money: Unlocked debate over unemployment sparks GOP divisions | Pandemic Detects Shortage of Unemployment Insurance Programs | Survey finds nearly one-third of retired workers MORE re-employed (R-Iowa) sei. “The administration needs to work with Canada as well to focus on ending China’s trade abuses.”
House Ways and Means Committee Chairman Richard NealRichard Edmund NealBiden says Trump’s executive mission is ‘a reckless war on social security’ Conservatives are urging Trump to take unilateral action to suspend tax collection. Treasury to conduct policy review of university tax exemption status after Trump tweets MORE (D-Mass.) Was more critical.
“The president has consistently slashed American workers and industry with his casual and half-baked policies,” he said. “This is just another example.”
Tori Smith, a trade expert at the Conservative Heritage Foundation, said the new trade barriers would only undermine economic recovery.
“It makes it very clear that the administration is still prioritizing a trading strategy,” she said.
What Trump is doing next has marginalized traders, and the markets.
One potential move involves lifting the Phase One deal altogether and raising tariffs on China. When the coronavirus pandemic broke out, Trump said on several occasions that he was “torn” about his attitude to life.
Another possible avenue would be the unusual use of the International Act of Emergency Economic Powers Act (IEEPA) to impose tariffs under the guise of an emergency. Last year, Trump threatened to use these powers against Mexico over illegal immigration, but later backed down.
The IEEPA was the basis for Trump’s executive orders on TikTok and WeChat.
A major escalation on any trade dispute could send markets back into a tailspin and subversive companies undermine less than three months before the election.
But Cecchini thinks markets are more concerned with immediate problems, and that the broader damage to consumers and the economy is likely to come further down the line.
“Right now, people are being blinded by other things, the recovery of the pandemic and the fiscal response to it,” he said.
“That while over time will matter – it will be the biggest risk to market – people are currently focused on other things.”