Global Geopolitical Series: War or not Trump will follow through to counter trade deficit

The Trump administration has slapped 25 percent tariff on all Steel imports to the United States and 10 percent tariffs on Aluminum imports. In response to President Trump’s tariff, Mexico has announced tariffs on a range of U.S. products from Cheese to Steel to Pork. The European Union has announced tariffs on a range of U.S. products worth €6.4 billion, of which, €2.8 billion went live from July 1st, with the rest to be announced at a later date. Similarly, Chinese tariffs on $34 billion of U.S. goods would go live from July 6th, which was announced in response to President Trump’s tariff on Chinese goods worth $50 billion.

One can say that we have already entered the initial phase of a trade war. But war or not, we at FxWirePro believe that President Trump would move ahead to counter U.S. trade deficits in whatever way he can. The recent comments made by the Commerce Secretary Wilbur Ross strongly suggests so. Mr. Ross, speaking to CNBC said, “Capital expenditure actually have been very very strong, and so has capital repatriation from abroad. In the first three of months of the tax bill alone, $300 billion was brought back from overseas. Capex is very strong, employment is very strong, unemployment is so low that we now have more jobs available than there are total unemployed people, the first time in history. So, we don’t see any signs right now of any weakening in the economy.” When asked about stock market, citing that S&P500 is down 5 percent YTD, Mr. Ross said, “Well the stock market hates uncertainty, in fact, business hates uncertainty, everybody hates uncertainty, and the worst fear is the fear of the unknown. But eventually, facts prevail and fears are either realized or they go away.” When asked about any level of drop in the stock market that might shift policy, Mr. Ross had this to say, “There is no bright line level that is going to change policy. The President is trying to fix long-term problems that should have been dealt with a long time ago….there is obviously going to be some pulling and tugging as we try to deal with a very serious problem. So there will be some hiccups along the way….you have to make policy based on what’s fundamentally good for the economy…..good for the long-term”.

The trade dispute is on. Expect it to turn into a full-blown war once the mid-term election is done with.