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Trump's Random Twitter Attacks Could Hinder Investment, Innovation

Trump's Random Twitter Attacks Could Hinder Investment, Innovation
(Jovani Carlo Gorospe/Dreamstime)

Tuesday, 03 April 2018 08:13 AM Current | Bio | Archive

President Trump on Monday continued his Twitter attacks against Amazon, after, over the weekend having tweeted that “the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon. That amounts to Billions of Dollars.”

Yesterday he tweeted: “Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed.”

Now, attacks by the president against a single U.S. company that here in this case is Amazon (AMZN) does not directly change the economic outlook of the United States, even if Amazon is a very important part of the U.S. equity market.

People still have jobs, people can still buy what they want to buy and that’s what matters.

Economic fundamentals ultimately matter in the long run.

Nevertheless, indirectly, there are a couple of negative implications from these attacks.

Most immediately, there is the negative wealth effect of a falling equity market on the economy. On Monday, Amazon lead a broad selloff while the Nasdaq-100 Index fell 2.9 percent and all of its components ended in negative territory. The index ended in negative territory for the year.

For now, this should not be too serious. Only about half of the Americans own equity and they generally don’t intent to accumulate that much equity as a rule.

Over the longer term, there is a question about random political interference in companies outside of established procedures.

This is not about the accusations leveled on the Trump Twitter feed, it’s about the fact they appeared on the Twitter feed rather than following legally established procedures.

The rule of law diminishes uncertainties and it generally helps bringing great economic benefits that furthers investment and economic growth as well as innovation.

Random tweets by the head of state against an individual company, of course if they persist, adds uncertainty in a way that may deter investment and innovation.

On Monday, the Chinese government placed tariffs on more than 100 U.S. products including pork, fruit and other goods. China’s finance ministry said the move was in reaction to U.S. tariffs on steel and aluminum imports announced in March.

Now and although the U.S. tax started as a general tax, there are so many exemptions that it has become a fairly focused tax.

Please keep in mind that none of all this constitutes a trade war.

Protectionism has been rising in recent years, although more through regulation than through the taxation effect of tariffs.

However, this was a “relatively strong” Chinese reaction to a “relatively minor” U.S. tax change.

With the administration threatening to increase taxes on U.S. consumers for a wider range of products, partially made in China, there are risks of escalation.

Many in the financial industry worry about a trade war. In such a case, countries would react to new tariffs with their own import taxes, placing new barriers to trade. Of course, we aren’t there yet.

On Monday, White House spokeswoman Sarah Huckabee Sanders said on “Fox and Friends” that Trump was “going to fight back and he’s going to push back.”

Besides all that, the data calendar today is uneventful.

Earlier today we got the final data of the IHS Markit Eurozone Manufacturing PMI that came in at an 8-month low amid broad-based growth slowdown. Chris Williamson, Chief Business Economist at IHS Markit commented: “March saw the biggest fall in the manufacturing PMI since June 2011 and the third successive slowing in the pace of expansion.”

Investors could do well keeping in mind that Manufacturing PMIs are opinion polls, which have a poor correlation with the economic reality. Real world economic data is generally a better indication of where things are going.

There are a couple of Fed speakers on the agenda today with Fed Governor Lael Brainard and Minneapolis Fed President Kashkari, but markets have lost focus on the Fed, for the time being at least, with an assumption of a steady Fed funds rate increase this year.

It’s worth remembering that the Fed is going to be focusing on the business (economic) cycle and not on the noise that has been moving financial markets as of lately.

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

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This is not about the accusations leveled on the Trump Twitter feed, It’s about the fact they appeared on the Twitter feed rather than following legally established procedures.
trump, twitter, investment, innovation
Tuesday, 03 April 2018 08:13 AM
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