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Renewed Threat Of Trade War Makes Investors Angry

Marc Chandler profile picture
Marc Chandler


  • Cohn out would strengthen the mercantilists' hands.
  • Key is how others respond to the provocation.
  • Equities lower on risk of trade war, USD mixed.

In response to the resignation of one of the few "globalist" advisers in the US Administration, the resignation of Cohn has sent ripples through the capital markets. Stocks have been marked down across the world. The prospects of a trade war are also not good for growth and it may be adding to the pressure on yields.

Cohn's resignation has two immediate consequences. As Cohn goes so does the last-ditch effort of forces within the Administration seeking to deter the tariffs. Treasury Secretary Mnuchin seems more supportive, though probably would have preferred a more targeted approach. The industry summit Cohn was trying to arrange has been canceled. That means that Congress is the next potential check on the unilateral trade power of the executive, which has largely been transferred from the legislative branch.

Second, and we suspect that investors are also responding to the implications for future trade policy. It means that the Ross and Navarro wing will set the tone. This signals a more confrontational and aggressive trade policy. The US reports the January trade balance today and it provides grist for their mill. The US is expected to report a $55 bln trade shortfall. The January 2017 deficit was $48.7 bln and in 2016 it was $43.4 bln. This illustrates the broad deterioration, even though we know that there has been dramatic improvement in the energy trade balance. Floating exchange rates and free-trade, they argue, should not result in the US having a significant and chronic trade deficit, unless 1) exchange rates are not really floating and/or 2) trade is not fair.

However, the response to the US actions arguably is the key to whether it turns into tit-for-tat spiral. This is surely one scenario, but is the most likely? First, we think about precedent. What was the response to Bush's 30% tariff

This article was written by

Marc Chandler profile picture
Marc Chandler has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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