Tags: trump | trade | tpp | barrier

Trump Creates New Trade Barrier for US Exporters by Leaving TPP

Trump Creates New Trade Barrier for US Exporters by Leaving TPP
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Thursday, 08 March 2018 07:32 AM Current | Bio | Archive

The uncertainty around the latest series of President Trump’s tariffs or tax increases continues.

On Wednesday, White House trade adviser Peter Navarro said that the Trump administration will initially exclude Canada and Mexico from stiff tariffs on steel and aluminum imports, an exemption they would lose if they fail to reach an updated North American Free Trade Agreement or NAFTA with the U.S.

Canada is the largest exporter of steel to the United States while Mexico is the fourth largest exporter of steel to the United States.

This has raised some hopes that U.S. consumers will also be exempted from taxes on steel and aluminum from other locations, for example the European Union (EU), the second largest exporter of steel to the U.S.

It seems relatively likely that U.S. consumers will face a tax on Chinese steel and aluminum, but China doesn’t sell very much steel and aluminum to the United States, so this isn’t a huge issue.

Investors could do well keeping in mind that the details still matter, and media reports suggest that we would get the details today. Ironically, President Trump was supposed to meet today with U.S. consumers of steel and aluminum before bailing out on the meeting.

Also, with some sense of irony, the Trans-Pacific Partnership (TPP) is due to be signed today.

Please keep in mind that the TPP will not come into effect until ratified by 6 of the 11 member countries.

It might also be helpful to recall that this deal is a preferential trade agreement. As soon as the TPP becomes operational, it will make it relatively more difficult for the United States to export to any of these 11 countries because the whole point of the agreement is that it gives preferential treatment to trade between the member countries.

This is one of the reasons why countries like the UK, which is not on the face of it as a subsequent nation, would like to join the Trans-Pacific Partnership or TPP.

By choosing to leave the TPP, President Trump has effectively created a new relative trade barrier for U.S. exporters.

With perhaps less than perfect timing, China’s trade balance came out overnight, stronger than expected with exports rising by more and imports falling.

China unexpectedly reported a trade surplus of $33.74 billion in February of 2018, up from $0.1 billion in 2017, while markets estimated a $2.3 billion deficit. Exports jumped by 44.5 percent year-on-year to $171.6 billion while imports rose 6.3 percent or $137.9 billion.

The politically sensitive goods trade deficit with China surged 16.7 percent to $36.0 billion, the highest since September 2015. The deficit with Canada soared 65 percent to a three-year high of $3.6 billion. China and Canada are the United States’ top trading partners.

In the meantime, Japan’s GDP was revised higher in Q4 of 2017 to 1.6 percent by more than expected but this is a domestic story around capital spending and not an export-led story.

Unsurprisingly, the Bank of Japan (BOJ) seems being in no rush to exit easy policy.

Away from all this trade noise, the Federal Reserve calmly indicated in its just released Beige Book that economically everything was on course for a series of rate increases this year of which I think there will be 4 rate rises.

The Fed’s Beige Book, which is published 2 weeks before each meeting of the Federal Open Market Committee (FOMC), suggested tighter labor markets are leading to wage increases alongside country-wide price increases. The price increases were however described as moderate. This is not runaway inflation of course.

At the same time, the U.S. economy hardly justifies negative real rates or an emergency monetary policy. The Fed is right to be tightening not to squeeze inflation out of the system, as in the past, but to maintain the status quo.

The situation in the Euro area hardly justifies negative real interest rates or indeed an emergency quantitative policy. Sadly, ECB Draghi is a little slower in recognizing that and nothing much is expected from today’s ECB meeting.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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HansParisis
The Fed is right to be tightening not to squeeze inflation out of the system, as in the past, but to maintain the status quo.
trump, trade, tpp, barrier
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2018-32-08
Thursday, 08 March 2018 07:32 AM
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