Following a ‘doctrine’ best defined by a White House official as “We’re America, Bitch”, Trump has engaged in egotistical trade battle that has even drawn in the International Monetary Fund (IMF), whose chief is warning of a doom-and-gloom global economic scenario.
IMF chief Christine Lagarde on Monday said that challenging the global trade equation was damaging business confidence the world over and the global economy would suffer for it.
While the IMF global growth forecast of 3.9 percent for 2018 and 2019 has not been changed, what happens next is likely to be dark.
“[…] the clouds on the horizon that we have signaled about six months ago are getting darker by the day, and I was going to say by the weekend,” Lagarde said, referring to the circus-style antics of Trump at the G7.
In the meantime, Washington has become increasingly trite, with Twitter being the primary foreign policy platform for simultaneously announcing major, unilateral decisions and airing dirty laundry without the aid of diplomacy or forethought. Against this backdrop, then, it came as no surprise when the Atlantic quoted a senior White House official as defining Trump ‘Doctrine’ precisely as “We’re America, Bitch”.
In fact, it’s apparently an entire ideology. (T-shirts coming soon, guaranteed).
But post-G7, America might find itself suddenly short on allies, and this whimsical ‘doctrine’ could end up being a playground philosophy that destroys business confidence.
“The biggest and darkest cloud that we see is the deterioration in confidence that is prompted by (an) attempt to challenge the way in which trade has been conducted, in which relationships have been handled and in which multilateral organizations have been operating,” Lagarde said, following a Berlin meeting with German Chancellor Angela Merkel and the heads of major international organizations, including the WTO and the World Bank. Related: Investors Scramble To Secure Property On The Korean Border
WTO Director-General Roberto Azevedo chimed in as well, saying “The U.S. has been focusing much more on bilateral – unilateral even sometimes—measures, which is not something that is support of the rules-based trading system.
“They have been complaining about the system, they say that they want to improve the system, but we would expect a more constructive approach on their part,” Azevedo said.
Investors don’t like policy when it has no clear strategy, when it’s whimsical, ever-changing, and even personal. So why, then, aren’t the markets responding?
Last week, ING foreign exchange strategist Viraj Patel wrote in a note to clients that “the threat of a global trade war has moved to DEFCON 4” … and then—nothing.
Tariffs are bad for the economy, and few think otherwise. They also harm business confidence, incapacitating investors. Jobs are likely to suffer, too, with the Chamber of Commerce predicting that as many as 2.6 million American jobs could vanish with Trump’s trade policies, which would be a bit of a slap in the face for an “America First” campaign.
Speaking to CNN Money, JPMorgan Funds chief strategist David Kelly suggested the market is very aware of what’s going on, and how dark the outlook is becoming. However, “the inappropriate amount of stimulus is being watered down by all this tariff confusion”, he said.
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In other words, things got out of hand with Trump’s tax cuts and the negative impact of tariffs is balancing that out.
So for the market, it’s similar to coming around full circle, back where it started—at least until a trade war gets severely out of hand. At that point, it will no longer be a case of two wrongs make a right.
For Canadian Prime Minister Justin Trudeau, though, there’s a silver lining to being personally attacked by Trump, who called him “weak” and accused him of “betrayal”: All of Canada will rally behind him and never will a Canadian prime minister have had this much support. Trump has succeeded in giving Trudeau the gift of unity: The Trump Bump.
By Charles Benavidez for Safehaven.com
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