For anyone celebrating the higher close of the Dow on Tuesday—the elation was short-lived. The sudden, after-hours resignation of Trump’s economic advisor and the key figure trying to tone down tariffs sent another shock wave through Wall Street.
Last week, the Dow lost 1,100 points primarily on fear of a global trade war. Over the weekend, speculators had a few drinks and decided that maybe it was all hot air. The Dow rebounded the first days of the week, closing up 0.04 percent on Tuesday.
But then the sudden, after-hours resignation of Trump’s top economic advisor, Gary Cohn, threw Wall Street a curve ball. Dow futures fell more than 300 points, and S&P Futures slopped more than 1 percent.
So, who is Gary Cohn that he can cause a 300-point drop in the Dow in a matter of hours?
Quite simply, he was the one figure the market was counting on to add some rationality to emerging protectionist policies coming out of the White House.
"The market looked at Gary Cohn as being the counterbalance to a pure strain of nationalism on tariffs and trade," Peter Kenny, chief global market strategist at Global Markets Advisory Group, told CNN Money.
Cohn is only one in a series of exits of high-profile figures from the Trump administration of late; but more importantly, his departure means that his lobbying efforts against Trump’s protectionist tariffs failed.
The market’s interpretation of Tuesday’s after-hours development is this: Now there’s no one in the White House to keep us from getting locked into a dangerous trade war. Related: Are Renewables An Attractive Investment For Oil Companies?
Republicans viewed Cohn--a free-trade-oriented Democrat and head of the National Economic Council--as “the steady hand who could prevent Mr. Trump from engaging in activities that could trigger a trade war,” according to the New York Times.
NYT described the tariff issue as the “most immediate catalyst” for the resignation of Cohn, a die-hard believer in free trade as a key to economic growth. The daily also cited “people close to the president” as saying that Cohn had warned last week that he could resign if tariffs went forward.
Now, the Trump White House looks like a protectionist playground, and the market once again views tariffs as much more than Trump letting off a bit of steam.
The 25-percent tariff on steel imports to the U.S. and the 10-percent tariff on aluminum imports announced last week are expected to be finalized later this week.
Trump’s indications that he might be willing to be flexible on trade with Canada and Mexico in return for a “fair” NAFTA deal has done nothing to calm fears--nor have assurances Tuesday to European ally Sweden that the tariffs would be implemented in a “very loving way”.
Despite the “love”, Europe is still on the warpath, threatening to retaliate with tariffs on American-made products such as Harley Davidson and Kentucky Bourbon, while Trump threw in threats of tariffs on European cars for good measure.
This is exactly how a trade war unfolds, and the market feels naked without Cohn.
By David Craggen for Safehaven.com
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