That’s the market mindset, for now, regarding the “trade wars” President Trump supposedly touched off in March, when he first imposed new sanctions on select imports. Since then, Trump has proposed tariffs on $150 billion worth of Chinese imports, while continuing to push for a new North American Free Trade Agreement that’s more favorable to the United States.
But Trump’s trade crusade seems to be petering out. After high-level Chinese negotiators visited Washington this week, administration officials said China agreed to buy more American products. But China declined Trump’s demand to reduce America’s $375 billion trade deficit with China by $200 billion. The impasse is probably okay, because this is how big international disputes get papered over: each side reports what it needs to in order to declare victory.
Meanwhile, it seems possible, and maybe likely, that Trump’s big NAFTA overhaul will get delayed until, well, later. A Congressional deadline for finalizing a NAFTA revamp has come and gone, with many details still unresolved. Trade tensions have been the darkest cloud over financial markets this year, but now the skies are clearing a bit. For that reason, our Trump-o-meter this week reads BIGLY, our equivalent of a B.
Trump, of course, is unpredictable, and this could all go awry if he loses patience and imposes his Chinese tariffs after all, or decides to torch NAFTA for good. But there are mounting pressures for him to stand down, instead. First, Trump needs to focus on his upcoming meeting with North Korean strongman Kim Jong-Un, scheduled for June 12. He needs China’s help to make that a productive event. It’s highly unlikely the North Koreans will give up their nuclear weapons, as Trump wants. So making the meeting with Kim appear successful will require careful staging and messaging. Trump probably won’t jab China on trade while seeking its help on North Korea.
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Second, political pressure at home is weakening Trump’s hand on trade. The one set of tariffs Trump has actually imposed raises the cost of about $3 billion worth of Chinese steel and aluminum imports to the United States. In response to that, China has put new restrictions on the sale of US agricultural exports to China, hurting American soybean, sorghum and ginseng farmers. They’ve been squawking, causing Trump bad publicity and possibly costing Republican votes in the upcoming midterm elections. With control of Congress at stake, Trump can’t afford to make many enemies. And this is over a puny $3 billion worth of trade, an insignificant amount, economically. Imagine the blowback if it affected 50 times that amount.
A single Trump tweet reveals the president’s eagerness to escape the trap he has set for himself. On May 13, Trump said he was looking for a way to get Chinese telecom company ZTE “back into business,” after US sanctions imposed in April crippled the company’s operations. Trump was basically issuing China a trade concession, publicly, before China did anything in exchange. We still don’t know what the exact deal will be, if one even materializes. But it’s pretty clear Trump is grasping for a way to settle his dispute with China.
NAFTA negotiations could lapse until the fall, since Mexico has a presidential election in July and has indicated it won’t negotiate in the late stages of the campaign. But by fall, the United States will be in the same position with regard to the November midterms. The demagoguery and public posturing that attends most campaigning makes serious policymaking difficult during election seasons. So Trump’s NAFTA reboot could slip all the way to 2019.
This is generally good news for markets, which have swooned every time Trump has threatened significant disruptions to global trade. Trump and his aides have suggested some short-term pain might be necessary to get better long-term trade deals, but the run-up to elections is the wrong time to inflict any pain on voters. In fact, there’s never really a good time to do that, as Trump seems to be learning.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman