If the US stock market hasn’t got enough to cope with as expectations of rising interest rates continue to spook investors, along comes President Donald Trump, who fires the first shot in what could end up being a trade war!
Two hours before the closing bell at the New York Stock Exchange, the Dow Jones index was down over 400 points and you can put this down to Donald’s ‘bright’ idea to slap tariffs on the imports of steel and aluminium into the US. Yep, and he says it starts next week!
One can only hope that people like me won’t have to conclude in some months’ time that “What Donald gives, Donald now takes away!”
This mightn’t surprise you but this is a Trump play that neither his Republican Congress colleagues nor his advisers support.
His plan will bring a 25% tariff on steel and a 10% slug on aluminium.
“We’ll be signing it next week. And you’ll have protection for a long time in a while,” the President said. “You’ll have to regrow your industries, that’s all I’m asking.” (Washington Post)
Believe it or not but the Commerce Department gave the President ammo to try this trade war stunt by arguing that rising import volumes were a threat to US national security!
The fear now is that trade partners such as China could escalate this into a trade war, which could become troublesome for a company such as Apple.
The world’s most valuable company reported an 11% increase in its combined fiscal first-quarter revenue from mainland China, Hong Kong and Taiwan to US$17.9 billion.
“We had an all-time record for revenue in mainland China,” said Apple chief executive Tim Cook in a conference call with analysts, but did not provide that figure. (South China Morning Post)
And sure enough, Apple’s share price was down overnight by nearly 2%.
The President also ignored concerns from US manufacturers, such as carmakers, who use these imports. In 2002, steel tariffs were imposed and steel importers claimed it killed 200,000 jobs and pushed up prices to consumers.
This from The Post staggered me. “The United States already has 169 trade taxes in place on various types of imported steel, including 29 on Chinese products,” it reported. “Some of the nation’s largest steelmakers, which sought the new tariffs, also are in good shape financially.â€¯Nucor reported a $1.1 billion profit last year.”
This threat to trade and stock markets comes as a senior Chinese Government official is in Washington trying to improve trading relations with the US.
So far the news has brought a predictable response from China.
“As for the actions of the United States, China will take proper measures to safeguard its legitimate rights and interests,” said trade spokeswoman Hua Chunying.
So why did he do it?
This year he has a mid-term election in October and his popularity ratings aren’t great. This is how theguardian.com summed it up recently: “Gallup poll shows Trump has averaged just 39% approval rating since his inauguration, a number that’s unprecedented for a US president.”
To get elected, the President-to-be promised to narrow the big U.S. trade deficit but it hit $US566 billion last year, and that was a 12.1% increase over 2016 and the highest mark in nine years.
And The Post says “the U.S. deficit with China last year hit a record $375 billion.”
Ironically, the new Fed boss, Jerome Powell, who started this market negativity this week with comments that drove stocks down, spoke before the Senate Finance Committee overnight and did his best to hose down fears of interest rates rising too fast because of wage rises that could fuel inflation.
"We don't see any strong evidence yet of a decisive move up in wages.,” he wisely said. “We see wages, by a couple measures, trending up a little bit, but most of them continuing to grow at about two and a half percent. Nothing in that suggests to me that wage inflation is at a point of acceleration."
Now that would have been good for stocks but along came Donald and his big idea for tariffs so we’ll see our stock market down today.
What Donald gives, Donald takes away. I always like to be objective on political decisions and politicians but the US President, who has always been a human worry, could soon become an economic and stock market worry!
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