“War of Words” On Global Trade To Continue

Business, China, Company Strategy, Economics, US

S&P500

By John Richardson

WE remain in almost entirely uncharted territory despite the confidence of US stock markets.

Take as an example the communique released after this weekend’s G20 meeting where traditional language about the importance of open global markets was dropped in order to keep the US happy.

The wording of this joint statement was a response to the approach of Steven Mnuchin,  the US Treasury secretary. He told the gathering that American policy would follow the campaign promises made by President Trump to put “America first”. This involves reviewing existing trade deals.

Thursday is an important date in your calendar. It is then that the House is set to vote on the Trump administration’s replacement for Obamacare, although there could be a change of plan if it becomes clear that not enough Republicans will support the bill. If at least 22 Republicans say they will vote against Trumpcare or Ryancare – enough for a defeat at the House stage – then it could be back to the drawing board.

Even if the bill does pass the House this Thursday, or at any future date, some commentators are insisting it will be dead on arrival in the Senate, as it would only have to be rejected by two Republican Senators to fail.

As of yesterday, the numbers looked very challenging for the Trump team: 45 House members either planned to vote against the bill or had concerns about its format, with 20 Senators sharing the same positions.

What does tell is about the rest of 2017? Today, this seems the most likely scenario:

  • The “War of Words” over trade will continue. Different opinions within the White House will contribute to this war, as will of course the political establishment in other countries that is firmly on the side of the existing international trade order. Even if this war of words doesn’t result in significant new trade barriers by the end of this year, all of this nervousness and uncertainty has already negatively affected world trade. A February report from the World Bank said that uncertainty in economic policy was responsible for a 0.6 to 0.8 percentage point fall in the growth in trade between 2015 and 2016. There will be more of the same this year.
  • Either a.) Healthcare reform stalls, which will also mean no tax reform or major infrastructure spending in 2017 or b.) Healthcare goes through but the time and effort that it takes – along with the deep divisions over what shape tax reform should take – means no tax changes in 2017.  There will also be no time to get infrastructure spending done. This of course means that the expected boost to US economic growth won’t happen.

This blog post has not been about the rights or wrongs of what’s been attempted by the White House. That is a separate, highly complex debate – and I will attempt to present both sides of this discussion over the coming months.

What I have instead again emphasised is that we are an era of political and economic uncertainty that none of us have experienced before because of the radical nature of what is being attempted by President Trump and his team.

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