Tags: Trump Administration | trump | trade | failure | campaign

Trump Failure to Turn Campaign Vows Into Policy May Hurt US Trade

Trump Failure to Turn Campaign Vows Into Policy May Hurt US Trade

By    |   Monday, 03 April 2017 01:33 PM

The Financial Times (FT) published an exclusive and very interesting interview with President Donald Trump.

In the context of Trump's upcoming two-day meeting with his Chinese counterpart Xi Jinping, the president said that the United States will resolve the nuclear threat from North Korea, with or without China's help.

“We will talk about North Korea. China has great influence over North Korea. And China will either decide to help us with North Korea, or they won't. And if they do that will be very good for China, and if they don't it won't be good for anyone,” Trump told the FT.

From a long-term investor’s standpoint, Trump’s statements better be kept in mind, at least for the foreseeable future, especially when we also look at:

  • What Secretary of State Rex Tillerson (when recently on visit to Asia) said that the U.S. policy of strategic patience has ended.
  • What deputy White House National Security Adviser KT Mc Farland said that there is a real possibility that North Korea will be able to hit the United States with a nuclear armed missile before the end of Trump’s first term at the White House.

When asked about what could be China’s incentive for helping the U.S. with North Korea,  Trump answered: “I think trade is the incentive. It is all about trade. By telling China that we cannot continue to trade if we are going to have an unfair deal like we have right now. This is an unfair deal … I don’t want to talk about tariffs yet.”

We’ll see if we will get somewhat enlightening on this subject, which is of great importance to literally everybody on the globe, this week out of Mar-a-Lago.

The fact that Trump hasn’t been able to close a deal on some of his campaign policy pledges such as immigration and healthcare could open the possibility (which doesn’t mean probability), that the U.S. might, in some way or another, be disposed to double down on trade.

It will be interesting to see how all this evolves.

Globalization is in trouble and some form of trade war with China could put global trade, as we know it today, in real trouble.

That said, when asked if he could cut a tax deal this year, Trump extended his answer to healthcare by saying: “Well, I don’t want to talk about when and I don’t want to talk about timing. We will have a very massive and very strong tax reform. But I am not going to talk about when … Right now I am working very much on the … You know that we didn’t take a vote but with healthcare … I don’t know if you know. They are negotiating right now. I said, ‘Don’t take a vote,' and we will see what happens. But one way or another, I promised the people great healthcare. Now, it will be in one form or another. It will be a repeal and replace of Obamacare, which is the deal that is the deal that is being negotiated right now.”

On the data front, we enter the twilight world of opinion poll surveys with the Purchasing Manufacturing Managers Indicator (PMI) data from Europe that came in at a near six-year high as growth accelerated in Germany, France and Italy. 

The problems with these data are well known, but maybe it's good for investors to recall them:

  • They are surveys and very few if not no one fills in surveys anymore.
  • If someone does fill in a survey, he or she clearly does not read the question. The answers to the export orders questions for instance, nearly always answer a different question from that, which is put.
  • They are influenced by the media news cycle, and the media news cycle has become sensationalist, which leaves the surveys prone to overreaction.
  • There is evidence of political bias in some, not all of course, of the surveys.

In simple words, for investors these flaws do matter because, at least on the level of the headline, there is a growing divergence between survey data and real world or hard economic data.

For example, a recent study of Morgan Stanley Research shows how the gap between soft survey data and hard data for the U.S. has never been wider than it is today, which signals there could be trouble ahead.

St. Louis Fed James Bullard also warned that the rise in sentiment isn’t showing up yet in the hard data.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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The fact that Trump hasn’t been able to close a deal on some of his campaign policy pledges, notably around immigration and healthcare, could open the possibility that the U.S. might be disposed to double down on trade.
trump, trade, failure, campaign
Monday, 03 April 2017 01:33 PM
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