Goldman: If Trump Wants To Win A Trade War, The Market Has To Crash
by Tyler Durden
ZeroHedge.com
Sun, 06/03/2018
Now that the Trump global trade war ceasefire is over with both allies (Canada, EU, Mexico) and adversaries (China), the hot takes are coming in, and none more exhaustive than a note by Goldman Sachs released overnight, in which economist Alec Phillips writes that less than two weeks after Steve Mnuchin declared that the “trade war is on hold,” a statement which China trade hawk Peter Navarro subsequently blasted as inaccurate, Trump’s policy has shifted substantially and “following trade announcements over the last few days, the trade war does not appear to be “on hold” but simply “on”, leaving even longtime observers of trade policy confused about the direction from here.”
So how should one try to make sense of Trump’s unique, confusing negotiating style? According to Goldman, at the start of the Trump Administration, “reciprocity” was the watchword guiding trade policy.
Trump made as much clear on Saturday when he tweeted that “The United States must, at long last, be treated fairly on Trade. If we charge a country ZERO to sell their goods, and they charge us 25, 50 or even 100 percent to sell ours, it is UNFAIR and can no longer be tolerated. That is not Free or Fair Trade, it is Stupid Trade!”
While the assumption of “reciprocity” may have been a useful concept in evaluating the Administration’s stance on various trade issues – indeed, Trump restated his reciprocal principle again June 1 – Goldman notes three other observations that help explain trade policy in the Trump Administration.
First, the President has said in the past that, when it comes to foreign policy, “we have to be unpredictable.” Unpredictability is also likely to be a side-effect of an administration made up of officials with widely divergent views on trade policy. This could result in sudden changes in policy depending on who is leading negotiations, speaking to the media, or taking the lead in advising the President.
Second, the Administration’s focus seems to be on bilateral trade deficits and heavy industry, particularly in areas where the two overlap. For example, while China’s intellectual property-related policies are of great concern to US multinationals, the President has often focused more specifically on heavy industry, like steel or the auto sector. This might explain why the President has recently focused on national security-related trade investigations on the EU and NAFTA countries, i.e., US allies that export substantial amounts of autos to the US, rather than China, a strategic rival which exports a negligible amount of autos to the US.
Third, the negotiation might be at least as important to the White House as the outcome. While we believe that the President ultimately is seeking “wins” on trade policy, like an eventual renegotiation of NAFTA or an agreement with China to reduce the trade deficit, we also believe that the White House places substantial political value in the negotiation itself. This keeps the issue in the headlines and, in theory, keeps voters engaged.
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