Tariff Wars Are Likely to Persist Despite Imminent China Deal
Author: Greg Valliere
May 3, 2019
WHILE WAITING FOR THIS MORNING’S JOBS REPORT, which probably will be still another sign of a red-hot labor market, let’s focus on one of the few economic negatives — the U.S. reliance on trade tariffs, which has been a modest drag on global growth.
PRESIDENT TRUMP FAMOUSLY DECLARED THAT “I’m a tariff guy,” which has exasperated members of his own party who believe that tariffs hurt farmers and U.S. firms that rely on predictable and affordable supply chains. Yet the tariffs are likely to persist on a wide range of Chinese products — and on steel and aluminum, to the dismay of countries such as Canada and Mexico.
MOST REPUBLICANS DISAGREE WITH TRUMP: Pro-business GOP lawmakers, led by Senate Finance Committee Chairman Charles Grassley, are insisting that trade and steel tariffs should be lifted on Canada and Mexico as a pre-condition for passing the NAFTA replacement treaty, called USMCA. But Trump apparently rejected their appeals this week, which convinces us that the treaty probably won’t be ratified this year.
THE BIG RISK, if there’s no new trade deal between the U.S., Canada and Mexico, is that Trump could carry out his threat to no longer abide by the existing treaty, NAFTA, and return to the pre-NAFTA playing field — which would be disastrously complicated for businesses in all three countries. We don’t think this will happen, although Trump could continue to threaten it.
STRANGE BEDFELLOWS: Trump knows that NAFTA and other trade deals are very unpopular in crucial electoral states like Pennsylvania and Michigan, where he beat free trade advocate Hillary Clinton in 2016. We think NAFTA has had a positive impact on the overall U.S. economy, but Trump knows a protectionist argument wins a lot of votes in the Rust Belt. Bernie Sanders, Elizabeth Warren and many other leftist Democrats agree.
THIS IS A PROBLEM FOR JOE BIDEN: Like Clinton, he has supported free trade deals, and already has been blasted by Sanders, who told CNN this week that Biden’s support for free trade will become a major issue in the Democrats’ looming free-for-all. Being the front-runner has its downsides, as Biden discovered this week; the front-runner becomes a target.
TRUMP WILL SHOW PLENTY OF TESTOSTERONE ON TARIFFS: Even with a trade deal with Beijing just weeks away from ratification, he apparently won’t lift all tariffs that he imposed on China last year. He hasn’t ruled out tough new auto tariffs, aimed largely at Germany, and the rocky relations between Washington and Ottawa will persist.
IF TRUMP REALLY WANTS ECONOMIC GROWTH to blast off before the election, he should end the tariffs, because they have a negative impact on small businesses and farmers in the U.S., which have to cope with uncertainty and retaliatory tariffs. But Trump apparently won’t relent — tariffs are a club that keeps U.S. trading partners in line, he believes, and his political base agrees.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2019 AGF Management Limited. All rights reserved.