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President Trump worries the markets

Donald Trump uses the stock market as a proxy for his economic prowess. However, he seems prepared to drive markets lower to meet certain goals.

Donald Trump used the stock market as a proxy for his economic prowess. However, he seems prepared to drive markets lower to meet certain goals.

John Redwood

in Features


Donald Trump is usually keen to will equity markets higher, as he tends to see the health of the US index as a commentary on his management of the US economy. In recent weeks he has had other preoccupations on his mind. He promised tougher controls on illegal migrants coming over the Mexican border, and wishes to shock his neighbouring state into helping stem the flow of people northwards into the US. He pledged to do better deals for America to correct some of the large trade imbalance. It looks as if he thinks this period of time whilst the Democrats row amongst themselves over who to put up against him is a good time to see how far threats and tariffs can go in getting some new deals he can say advance his cause.

President Trump is trying to be a populist in power. It is more difficult than being a populist challenger to the establishment, because being in power turns you into the establishment. My recent book “We don’t believe you” chronicled the various issues where many voters in the US and in Europe dislike the choice of problems and the preferred policies to deal with them put forward by traditional mainstream parties and governments. On both sides of the Atlantic new movements, protests and new parties have campaigned to change the agenda and the policies. In France, the Gilets Jaunes and National Rally want tax cuts for greater prosperity. In Germany, people vote AFD to seek lower migration and more German control of money and policy. In Italy, the populists want tax cuts and spending rises, busting the EU financial rules. In the US, President Trump subverted a traditional party and turned it into an anti-establishment force. He campaigned to cut migration, renegotiate trade deals, slash taxes and encourage more US investment and jobs.

President Trump, in his early days, carried on as President as if he were still a free-wheeling independent providing commentary on what is wrong with government. It looked as if after many changes of top personnel in his administration he at last had in place office holders who believe in his agenda and would faithfully follow it. In government what you say should also be what you do and what happens. In the last few days, even this temporary settlement has broken down. The Commerce Department has not yet taken responsibility for his latest tariffs on Mexico, latching on to the President’s statement that the 5% tariff escalating to 25% is pressure to get the Mexicans to control movement of people better over their border. The Department for Homeland Security has been asked to handle it. Meanwhile President Trump has commented that the Mexican tariffs are also about the imbalance of trade and the flows on auto investment. The Cabinet members want to implement the US-Mexico-Canada trade agreement and get it ratified by all three countries. The imposition of new general tariffs on Mexico destabilises that difficult process.

The Trade Negotiator and Treasury Secretary probably thought the strategy was to concentrate on tough actions with China to get a break through there, whilst parking the trade disagreements with Germany for the time being and ratifying the new agreements with Canada and Mexico. The new Mexican front does not easily fit in with this, and raises new issues about the legal base and purpose of the actions. The Acting Chief of Staff and the Acting Homeland Security Secretary have so far fielded press queries in general terms about how the new tariffs will work and how the International Emergency Economic Powers Act should provide legal cover for their actions. They have until 10 June on the President’s timetable to get a universal Mexican 5% tariff up and running, with threatened 5% uplifts every month until October.

This week, President Trump visits the UK to commemorate the D-Day landings, when US co-operation with Canada, the UK, Australia and other World War allies was at its greatest. The President may use it as another opportunity to ram home his message against Chinese technology partners, and to seek a higher contribution to NATO military financing by the European allies.

The conclusion must be that President Trump, unlike most politicians, moves markets. This time he is moving them down. It is not the way he wants them to go, but he seems to see this as a necessary evil to try to get some better deal on the Mexican border and on China trade in time for his re-election campaign next year. It is difficult to judge how long this bellicose trade phase will last, but it looks as if there is more to come before markets can tick off the negative of trade war from the list of worries. Homeland Security points to 109,000 migrants coming from Mexico in April alone, with more for May. Will Mexico offer some assistance with trying to reduce the numbers? Meanwhile the central banks need to watch the weakness of bond yields, as markets signal economies are still slowing and need a monetary boost. That too is bearish.

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