Foreign trade safety

Did Trump Just Start a Global Trade War?

President Donald Trump has made good on his promise by imposing tariffs of 25 percent and 10 percent, respectively, on steel and aluminum imports. He handed neighbors Canada and Mexico an olive branch by exempting them -- as long as the U.S. gets what it wants in talks to revamp the North American Free Trade Agreement -- and signaled he could do the same for other allies. The tariffs prompted an outcry from trading partners, Republican lawmakers, economists and business leaders. Talk of tit-for-tat reprisals by the European Union, China and other trading partners raises the prospect of economic growth slowing and stock and bond markets reeling out of fear that Trump just started an all-out trade war. Did he?

1. What is a trade war?

The dictionary says it’s “an economic conflict in which countries impose import restrictions on each other in order to harm each other’s trade.” Trump’s tariffs and the threatened retaliation from other countries certainly meet that definition, but so do centuries of protectionist skirmishes by numerous countries in countless sectors, not just the U.S. and not just in steel. What could make this episode more war than skirmish is Trump’s invocation of national security to justify tariffs -- which could open a Pandora’s Box of similar claims by other nations -- and his threat to further punish any country that reacts by imposing counter-duties...

Foreign trade safety

Wall Street is starting to realize these tariffs are just the start of a bigger trade conflict

Markets have been weaker midday Wednesday because the Street is starting to realize that there is an increasing likelihood these initial salvos on steel and aluminum tariffs may indeed escalate into a wider trade conflict, something traders have been in denial about all week.

I've often said markets don't lie, but they can sometimes delude themselves. Traders have mostly believed that the threat of tariffs on aluminum and steel would not escalate into a global trade war, and, most importantly, would not threaten the stories of global growth and record earnings that together have been the reigning investment paradigm.

...Whether it gets that bad is not clear, but what is clear is that people are no longer saying "it's not going to matter." They are looking at whether this will be "somewhat bad or very bad," as Jason Furman, the chairman of the Council of Economic Advisors under President Obama, said on CNBC.

"But you look at President Trump's tweets and you know, $800 billion trade deficit — he says it over and over again, the number isn't even right," Furman said. "He seems very, very focused on this and focused on reciprocal tariffs and all sorts of other ideas that would take this up a level, not calm it down and reduce it a level. But we'll see. We're talking about, is this somewhat bad or very bad? And that doesn't seem like a great conversation to be having."

The unfortunate part of this whole story is that it is distracting attention from the very real trade issues we have with China. Instead of building a coalition to address China's trade issues and intellectual property theft, the President is alienating the U.S. trading partners who would be part of that coalition, a point aptly made by The Wall Street Journal on Wednesday.