11 April 2020
1300 794 893
Is this a case of good politics equals bad economics?

Can the stock market rein Trump in?

Peter Switzer
5 March 2018

Wall Street was up ahead of the closing bell and the reason was simple: President Donald Trump was showing signs of compromise on his tariffs on steel and aluminium. Of course, his unpredictability on any subject is again creating stock market anxiety with the retaliation threats building by the day.

And how this goes could prove critical to Malcolm Turnbull, who needs a trade war and a stock market slump like another Barnaby blow up!

So the question is: can the stock market rein in Donald Trump and his tariff tantrum?

One of my twitter followers, Darrell, made the point that Donald promised this pre-election but there is a fair argument that some election promises make more sense politically than they do economically.

There’s an old saying that says good politics is bad economics and good economics is bad politics and it certainly applies in this case. And this is a classic case of good politics giving birth to bad economics.

Getting up this morning and the Dow Jones index was up 250 points before the close and I’m not sure this is a good thing, if it makes Donald relaxed about the impact of his decision on stocks.

On the other hand, the message might already have started to sink in that if a trade war results, the stock market won’t like it. And I wonder if his popularity can stand losing his greatest supporter — Wall Street heavies — behind the cheesed off, working class Americans who thought he’d make a great President.

CNBC opened the door on optimism with the suggestion that the Donald could be wavering.

“Trump appeared to be opening the door for negotiations on tariffs,” it reported. “In a series of tweets Monday morning, Trump said: ‘Tariffs on Steel and Aluminum will only come off if a new and fair NAFTA agreement is signed,’ adding that ‘Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done.’

So let’s hope Donald is practising his famous ‘Trump: Art of the Deal’ technique which, of course, is the name of his 1987 book and again is on the best-seller list!

Another revelation gives a little confidence that this is a bargaining ploy in play, with news that the Republican’s House Speaker, Paul Ryan, is said to be “extremely worried” about the prospects of the Trump tariffs to create a global trade war.

The craziness of tariff ‘tit for tat’ encounters is shown at its worst when we learn that Europe is eyeing off Harley Davidson bikes for their get-even tariffs, along with other US products.

In the whole scheme of things, Wall Street’s reaction to his trade plan could prove crucial because the President has mid-term elections in eight months’ time. Historically, the months of May to October aren’t great for stocks compared to November to April, so if a trade war escalates in coming months, the stock market won’t like it and Wall Street will hold Donald responsible.

Clearly, the NAFTA agreement and what Mexico and Canada can give way on will determine what the President decides but, given Malcolm Turnbull’s latest Newspoll, he’ll be hoping that a trade war is averted.

The Australian economy’s improvement is his strongest card going into an election and even a party room challenge but if a tariff war derails global trade and sends the stock market down, he might not have a political leg to stand on.

This week we get a raft of important economic data from economic growth to retail figures. If you add this improving economic picture to our better reporting season, there’s good reason to be optimistic about the outlook for stocks, jobs and maybe even votes for the PM. However, a trade war could quickly turn optimism into pessimism.

In Donald we trust!


Peter Switzer's book Join the Rich Club is on sale for 30% off from the Switzer Store until the end of Easter. Click here to pick up a copy today!

Let us know what you think
Get the latest financial, business, and political expert commentary delivered to your inbox.

When you sign up, we will never give away or sell or barter or trade your email address.

And you can unsubscribe at any time!
1300 794 893
© 2006-2019 Switzer. All Rights Reserved
homephoneenvelopedollargraduation-cap linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram