‘Trade wars are good, and easy to win’

On Thursday Donald Trump announced that the United States would impose tariffs on imported steel and aluminium.

After a negative reaction around the world and on the US stock market, Trump has tweeted that ‘trade wars are good, and easy to win’.

Reuters: Trump tweets: ‘Trade wars are good, and easy to win’

Trump said on Thursday that the United States would apply duties of 25 percent on imported steel and 10 percent on aluminum to protect U.S. producers, although White House officials later said some details still needed to be ironed out.

Fears of an escalating trade war triggered selloffs on Wall Street and in Asia and Europe, hitting the share prices of steelmakers and manufacturers supplying U.S. markets particularly hard.

Trump believes the tariffs will safeguard American jobs, but many economists say the impact of price increases for users of steel and aluminum, such as the auto and oil industries, will destroy more jobs than curbs on imports create.

Australia’s trade minister said the measures risked triggering retaliation from other economies and could cost jobs, on Friday, while China predicted harm to trade if other countries followed the example of the United States.

In Brussels, the European Commission called the step a blatant intervention that amounted to protectionism. However, while promising to act“firmly”, it made no mention of retaliation but instead spoke of counter-measures that conformed to World Trade Organization (WTO) rules.

Brussels will join other countries in challenging the measures at the WTO and says it will also look into safeguard measures.

Reuters: Spooked by Trump tariffs, investors see few good options

The specter of a trade war started by U.S. President Donald Trump rattled Wall Street on Thursday and exacerbated worries about inflation and the future of a nine-year bull market.

The S&P 500 slumped 1.33 percent after Trump said the United States would impose duties on imported steel and aluminum, making good on promises to aggressively challenge China and other countries he blames for lost manufacturing jobs.

On Wall Street, Trump’s announcement exacerbated already-brewing concerns about inflation, which could push the U.S. Federal Reserve to hit the brakes in coming months on an expanding U.S. economy and spell the end to record-breaking stock price gains.

News of the tariffs drove the stocks of U.S. domestic steel and aluminum makers sharply higher, but the damage to stocks in other sectors was wide-ranging and illustrative of how broadly investors believe a trade conflict could damage the U.S. economy.

Halfway through Friday trading the Dow Jones was down further but had recovered slightly earlier in the day.

Investor’s Business Daily:  Sorry, Mr. President: Your Trade Protectionism Will Cost The U.S. Dearly

Protectionism is a political feel-good policy that does nothing for the economy. It’s a big cost with very few tangible benefits. That’s why President Trump has made a big mistake in imposing big tariffs on steel and aluminum.

We understand, of course, that President Trump feels beholden to his constituencies in the U.S. who have been hurt by foreign competition, particularly in basic industries like steel and aluminum. But the 25% tariff on steel and 10% tariff on aluminum that Trump seeks to impose will lead to higher prices for all, the loss of thousands of jobs and a political-crony windfall for a handful of big companies.

‘Political-crony windfall’ is becoming a familiar theme of Trump’s presidency.

WSJ: Trump’s Steel-Tariffs Plan Rattles GOP Lawmakers

Since he became president, Donald Trump’s threats to sanction global trading partners sent tremors through business-oriented congressional Republicans worried about how potential retaliation from abroad could reverberate through the businesses and farms in their districts.

On Thursday, the rattle turned into an earthquake.

WSJ: U.S. Allies Steel for Trump Tariff Tussle

President Donald Trump’s planned tariffs on steel and aluminum put U.S. allies around the globe in a tough spot, driving down stock prices and generating warnings of a possible international trade war.

UPDATE:

According to two officials, Trump’s decision to launch a potential trade war was born out of anger at other simmering issues and the result of a broken internal process that has failed to deliver him consensus views that represent the best advice of his team.

On Wednesday evening, the president became “unglued,” in the words of one official familiar with the president’s state of mind.

A trifecta of events had set him off in a way that two officials said they had not seen before: Hope Hicks’ testimony to lawmakers investigating Russia’s interference in the 2016 election, conduct by his embattled attorney generaland the treatment of his son-in-law by his chief of staff.

Trump, the two officials said, was angry and gunning for a fight, and he chose a trade war, spurred on by Commerce Secretary Wilbur Ross and Peter Navarro, the White House director for trade.

In response to NBC News, another White House official said that the communications team “was well-prepared to support the president’s announcement” and that “many of the attendees had been in the White House before and had already been vetted for attendance at a presidential event.” A different official said of the decision, “everyone in the world has known where the president’s head was on this issue since the beginning of his administration.”

There were no prepared, approved remarks for the president to give at the planned meeting, there was no diplomatic strategy for how to alert foreign trade partners, there was no legislative strategy in place for informing Congress and no agreed upon communications plan beyond an email cobbled together by Ross’s team at the Commerce Department late Wednesday that had not been approved by the White House.

No one at the State Department, the Treasury Department or the Defense Department had been told that a new policy was about to be announced or given an opportunity to weigh in in advance.

The Thursday morning meeting did not originally appear on the president’s public schedule. Shortly after it began, reporters were told that Ross had convened a “listening” session at the White House with 15 executives from the steel and aluminum industry.

Then, an hour later, in an another unexpected move, reporters were invited to the Cabinet room. Without warning, Trump announced on the spot that he was imposing new strict tariffs on imports.

By Thursday afternoon, the U.S. stock market had fallen and Trump, surrounded by his senior advisers in the Oval Office, was said to be furious.

 

Stock market plunge

World stock markets are all significantly down in Monday trading. New Zealand can do little but try and keep the fundamentals here sound. There’s nothing we can do about the world markets. The Shanghai market was down 8.4% yesterday.

NZ Herald: Wall St tumbles as China syndrome rocks world markets

The Dow was down 282 points, or 1.7 percent, to 16,176 points as of 1:54 p.m. Eastern time. The S&P 500 dropped 39 points, or 2 percent, to 1,931. The Nasdaq composite fell 72 points, or 1.5 percent, to 4,663 points. The three indexes are down for the year.

The New Zealand sharemarket was a sea of red ink yesterday as stocks were sold down in response to weakness in the global markets and investors worldwide became increasingly nervous about China’s economic prospects.

By the close of trading, the S&P NZX 50 was down 143 points, or 2.49 per cent, to 5616, with $2.25 billion shaved off the market’s total value. It was the worst day on local markets in four years.

Australia’s All Ordinaries Index fared even worse, slumping 3.66 per cent. In China, the Shanghai Composite Index was down 8.4 per cent at 3211 late yesterday.

A big blip or a slide?

From New York Times: Why Global Financial Markets Are So Turbulent

Last week, global financial markets were churning, but it really only mattered if you were an oil trader, Chinese bureaucrat or hedge fund manager.

Now it’s starting to get scary for everyone.

An 8.5 percent drop in the Shanghai Composite index in Monday’s trading session spread to financial markets across the world. In the United States, the broad Standard & Poor’s 500 index was down 2.5 percent in Monday morning trading, after steeper declines in Asian and European stock markets, falling prices for oil and other commodities, and a rush of money into the safety of United States Treasury bonds.

It started in China:

The immediate trigger to the outburst of global volatility was China, where the sharp drop in stocks Monday continued a rout that has been underway — with periodic pauses thanks to government interventions — all summer.

The Chinese economy is slowing, and the 38 percent drop in the Shanghai Composite Index since June 12 is indeed a huge number. There is no question that this giant economy is struggling with a transition from the investment-and-export-led boom of the last generation toward something more sustainable.

But a few facts make China’s problems less satisfying as an explanation for the turmoil across world markets. The Chinese stock market has risen sharply over the past year as millions of middle-class Chinese citizens took to making investments. Even after its steep drop this summer, the Shanghai index is down less than 1 percent for the year and still up 43 percent from one year ago.

Other markets followed:

Some of the key evidence for the “this is about more than China” story come from other emerging markets, stretching from Malaysia to Mexico, that are also taking it on the chin. Their currencies and stock and bond prices have fallen sharply over the last week. Some of that most likely reflects exposure to the Chinese economy. But some of it reflects something bigger.

In effect, the Fed’s easy money policies led global investors to search for higher-yielding securities, which they found in many faster-growing emerging markets. Money gushed into these countries in search of better returns from 2010 until 2013, driving up prices of assets.

But as the end of the era of cheap dollars has approached, that hot money has pulled out — and created volatile spikes in interest rates and damage to those emerging economies.

And oil.

The price of a barrel of oil fell from around $60 in late June to under $40 on Monday. Over time, that will be good news for American and European energy consumers, but there are complex feedback loops that probably make the commodity sell-off both a cause and a result of the broader emerging markets panic.

Waiting for the Fed.

In the background of all of this is a crucial decision looming for the United States Federal Reserve. Fed officials have expressed confidence that the domestic economy is on track and that the time is right to raise interest rates after nearly seven years of keeping them near zero. It could make that move at its policy meeting Sept. 16 and 17.

Fed officials have indicated a determination to base interest rates on what is most appropriate given the state of the American economy and not to overreact to fluctuations in markets. The latest volatility will test that resolve.

Of course, it is the Fed’s job to set policy based on where the economy is going, not where it has been. If markets keep falling, that could endanger American growth prospects. On the other hand, the Fed’s job isn’t to try to protect investors from the risks of a downturn.

Where too from here?

The Dow Jones is currently down 4.19% (US Monday).

UPDATE: After a down and up day the Dow Jones closed significant;y higher tha it’s opening lows but still finished down 3.58%