You could have gotten whiplash watching the stock market this week, as stocks yo-yo’d based on shifting reads of President Trump’s stance on trade.
First came new worries about a trade war with China: Stocks tanked. Then came suggestions Trump might back down: Stocks recovered. Then came a new statement from Trump saying he might triple the amount of Chinese imports subject to new tariffs: Stocks sank again.
All along, Trump and his advisers tried to assure markets there would be no trade wars and all would be fine.
Here’s where we stand, after a spate of tit-for-tatting: China and the United States have each threatened to slap comparable tariffs, of up to 25%, on $50 billion worth of imports from the other country. So $100 billion worth of trade could end up subject to new tariffs. That’s about one-seventh of all trade between the two countries, which totaled $711 billion in 2017.
Trump, apparently incensed that China would dare to retaliate, has also said he might slap tariffs on an additional $100 billion worth of Chinese tariffs. China said if he does that, the result will be a “fierce counter strike.” The verbiage, at least, is compelling.
But wait: There’s less: These tariffs might never go into effect. Commerce Secretary Wilbur Ross suggested the whole kerfluffle might get negotiated away, while pointing out there will be a months-long comment period before a single tariff is actually levied. For traders focused on making a profit in the next hour—or the next nanosecond—tariffs suddenly became as much of a pressing concern as the fall harvest.
Markets are now pondering these questions: Is Trump bluffing? Are disruptive tariffs just a negotiating ploy? Is this mostly just bluster? Or is Trump the Trade Monster just beginning to rampage?
It’s possible even Trump himself doesn’t know. One possible guide: The steel and aluminum tariffs Trump announced on March 8 have been thoroughly watered down, since countries representing the majority of those imports have now received exemptions. One country that hasn’t, and presumably won’t, is China. So it’s possible China was the real target of those tariffs from the outset. It’s also possible Trump didn’t think through the consequences before announcing those tariffs and began backpedaling the moment markets signaled their dissatisfaction by falling.
The S&P 500 is still down slightly for the year, which it shouldn’t be, in theory, given the tax cuts that are juicing corporate profits. So the Trump Slump continues. But stocks are about 4% above the near-term low on April 2, when markets were gloomiest about the prospect of a new trade war.
There’s more to come on trade. Still undergoing revision is the North American Free Trade Agreement (NAFTA), which Trump occasionally threatens to kill outright, most recently on April 1. The same questions that apply to China apply to NAFTA: Will Trump be content with modest changes that allow him to declare victory but don’t disrupt trade flows? Or will he start to break things, regardless of the consequences? It’s Nixon’s madman theory, except applied to trade rather than national security.
Meanwhile, Trump has helped shave $50 billion off Amazon’s market value, which counts as an accomplishment, on his scorecard anyway. Trump seems to feel deep personal animosity toward Amazon CEO Jeff Bezos, who also owns the Washington Post, a frequent Trump critic. Trump hasn’t proposed any actual action toward Amazon, but several tweets lambasting the company for its contract with the US Postal Service have raised concerns he could. That has sent the stock price about 7% lower than it was before Trump mounted his latest round of attacks, reducing its market capitalization by about $50 billion.
The obvious irony is that Trump stumps for old industrial concerns such as steel and aluminum, while much of the dynamism in the US economy comes from innovative upstarts such as Amazon, which Trump derides. The America he wants to make great again is the America of the past. Future America, he doesn’t seem to notice.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman