A NO-WIN FOREIGN POLICY
It's clear that President Trump's "America First" policy does not produce a "win-win" outcome for it and other world trading partners...at least, it has not been proven, yet.
So far, he's only been successful in tearing up prior agreements related to the Trans Pacific Partnership, the Paris Climate Agreement, the Iran JCPOA, and has threatened to tear up the NAFTA with Canada and Mexico (see this Global News article: "Reality check: No, the U.S. doesn't have a $17B trade deficit with Canada"..."So the real trade balance with Canada is positive in the U.S.'s favour"...to the tune of "around US$12 billion") as reported by both Statistics Canada and the Office of the United States Trade Representative.
Although he is in current trade talks with China, he has not been successful in negotiating a new trade agreement with Canada and Mexico, nor has he been successful in negotiating any other bi-lateral or multi-lateral agreement that I'm aware of, including a peace agreement between Israel and the Palestinians.
He has also increased tensions with these and other countries by tearing up the above-mentioned agreements without replacing them with new agreements.
Inasmuch as the economy of the U.S. is in far better shape than its counterparts, with improved GDP, lower unemployment, rising wage growth, job growth, low inflation, lowered income taxes, reduced business and banking regulations, a comparatively lower dollar (although it has strengthened a bit this year), high business and consumer confidence, increased business capital spending, along with continued growth in its stock markets (likely due to his domestic agenda, much of which he has already implemented), it's inconceivable that Mr. Trump would want to risk all of those gains by taking a hard-line, "winner-takes-all" foreign policy approach by starting trade wars with countries that don't even pose a national security risk and which would create widening and unsustainable imbalances.
Just look at the evidence as reflected in these world markets and currencies.
The following one-year charts and graphs show that the U.S. markets have far out-paced Canada, Mexico, the EU, and even China, which is the only country that's been accused of flooding the markets with steel, and whose tech giant, ZTE, may be allowed to continue its business in the U.S. (which has, in fact, been labelled a threat to US national security by Congress).
A clear imbalance already exists.
President Trump is going to risk all of these gains, in my opinion, by continuing with this hard-line and one-sided approach with his allies who are currently engaged in cooperative international military actions/assistance/protection of some sort.
I wonder what kind of concessions he will make just to get some kind of a "deal" with North Korea...or whether he will apply the same "winner-takes-all" approach that he has with his allies...or whether Chairman Kim will end up with his usual "winner-takes-all" deal that he and his predecessors have pulled off, to date, against previous Presidents...particularly with the backing of NOKO by China, Russia and Iran.
On my aforementioned point related to China, if President Trump strikes a deal with China to allow ZTE to continue operating in the U.S. (in spite of its declared national security threat) simply so he can make some kind of a quasi-deal with North Korea, I don't see how he could, credibly, continue his argument that Canada, Mexico and the EU pose a national security threat...that makes absolutely no sense. Regardless of the ZTE matter, Mr. Trump's declaration that his allies pose a threat is nonsense.
post of November 12, 2016, that it would be important for the U.S. to work cooperatively with other world countries to ensure that a delicate balance is achieved among them with respect to fiscal policies, Central Bank policies, interest rate adjustments, inflation, currencies, trade, debt-to-GDP, infrastructure spending, etc., so as not to, potentially, cause a catastrophic imbalance and domino effect on the rest of the world.
This year's rise in volatility, not only in U.S. markets, but other world markets as well, tells me that this imbalance has already begun and is likely to get worse if Mr. Trump continues with his hard-line tactics that could, eventually, lead to international recessions.
Therefore, my 2018 Market Forecast of higher market volatility and political uncertainty remains unchanged. For the time being, the U.S. may be the best place to invest, but for how long and at what capital cost for sufficient risk protection, especially with the midterm election looming in November?
* UPDATE June 6...
This excerpt from the above Reuters article reinforces my points: "Wednesday's report from the Commerce Department was the latest sign of robust economic growth in the second quarter. But a protectionist trade policy being pursued by President Donald Trump, which has seen the United States slapping tariffs on imports from a host of countries including China, Mexico and Canada, as well as those in the European Union, poses a threat to the otherwise rosy economic outlook."
And, this CNBC article below describes a dire warning from the World Bank...
* UPDATE June 7...
It looks like President Trump has now made a deal with China regarding ZTE...in my view because he's over-anxious to make some kind of a deal with NOKO.
So I still stand by my comments above...his arguments regarding national security and his allies are irrational, make no sense and are without merit.
But, the Senate has introduced legislation to prevent the ZTE deal, which will be discussed next week...so, we'll see whether Congress knee-caps the President's say in this particular matter...and, if passed, what effect, if any, this may have on international trade, and, even, any deals with NOKO.
The next few days (and beyond) should be 'interesting'...beginning with the G7 meetings to be held in Quebec on June 8 and 9 and the Trump-Kim Summit in Singapore on June 12.
LOL...With this tweet, President Trump has just weakened his 'national security' argument relative to steel and aluminum by throwing in extra 'concerns' now like milk and by his personal (emotional) attack against PM Trudeau.
So, he can add all of these other complaints, but they completely ignore the fact that it's Canada that has an overall US$12 billion trade deficit with the U.S., not the other way around, as I mentioned above...the U.S. is already beating Canada in this trade game. If any country's 'national security' is being threatened, it's Canada's because of this trade imbalance in favour of the U.S.
And, with Canada's population of only 36.95 million versus 327,867,715 (on June 7, 2018) in the U.S., Canadians can consume only so much milk (two scoops of ice cream is too much)! Imports of U.S. dairy products into Canada are less than 0.15% of total U.S. imports.
His additional tariffs are unduly punitive and unwarranted, in my opinion.
|Source: Trading Economics (click here for interactive version)|
|Source: United States Census Bureau|
* UPDATE June 8...
G7 countries begin 2-day meetings in Quebec...
The GDP of the U.S. is greater than that of the G6 countries, combined...a 'national security' threat, indeed...👀
Is President Trump willing to erode Americans' record gains in net worth with world trade wars? We'll see.
* UPDATE June 9...
All leaders agreed to a joint communique at the conclusion of the G7 summit...the issue of trade and President Trump's steel and aluminum tariffs (and other countries' retaliatory tariffs) remained unresolved. So, his record with respect to successfully negotiating new agreements with foreign leaders remains at zero.
* UPDATE later on June 9...
And...now the 'flip' from Mr. Trump (who has just withdrawn his endorsement of the G7 communique).
And I thought his tariffs were imposed, not only on Canada, but also on Mexico and the EU, because they were supposedly based on 'national security' reasons, not on Canadian/U.S. dairy matters...go figure!
By the way, Mr. Trudeau's comments made in his pre-scheduled post-G7 summit press conference (which he routinely holds following his summits) are the same comments he uttered in a national media briefing he held prior to the summit (I watched both of his press briefings in real time on TV), and, we're told, which he said directly to Mr. Trump...so, these words should not have come as a surprise to the President or his advisers.
|Excerpt from The Globe and Mail Inc.|
President Trump seems to have conveniently disregarded the fact that Canada bailed out American GM and Chrysler's operations in Canada after the U.S. 2008/09 financial crisis...for a loss of CAN$3.7 billion...so, to now punish its auto sector is unbelievable.
Mr. Trump's offhanded threat regarding auto tariffs would have a serious impact, not only on Canada, but also on the U.S. Here's a peek at Canada's total imports from the U.S., in terms of percentage:
|Source: Trading Economics (click here for interactive version)|
No doubt we'll see more of these personal attacks against G6 members from Mr. Trump and his spokesmen in the days/weeks ahead, as is their modus operandi, and which do nothing to bolster their argument as to why they would impose tariffs on steel and aluminum against Canada, Mexico and the EU under the premise of 'national security' concerns...other than to use this designation in order to simply circumvent an approval process by Congress, which is required for tariffs outside this designation. But for what purpose? Just to bully their allies? Because that's what it's beginning to look like. And, the worst thing he can do is to belittle and underestimate the power and unity of the G6 leaders.
I'll reiterate what I said above...Mr. Trudeau's comments made in his pre-scheduled post-G7 summit press conference (which he routinely holds following his summits) are the same comments he uttered in a national media briefing he held prior to the summit (I watched both of his press briefings in real time on TV), and, we're told, which he said directly to Mr. Trump...so, these words should not have come as a surprise to the President or his advisers.
Where's the 'art' in this deal?
Trade wars have escalated and now encompass diplomatic wars.
It looks like the gloves are off...
|Source: CBC News|
A Canadian perspective (former Canadian PM Stephen Harper)...
And, support is expressed for U.S. allies from this brave American, Senator John McCain (who is in my prayers)...
The coming week should be 'interesting' for markets with the upcoming interest rate announcements and press conferences by the U.S. Fed on Wednesday, the ECB on Thursday, and the Bank of Japan on Thursday/Friday. I'm interested in whether any forward-guidance statements will be disclosed (or subtly signaled) regarding whether any potential world-wide economic slowdown/recession is on the horizon (or even in their radar) for late 2018 or early 2019 (as has been discussed recently in the financial media as a real possibility). However, we may not become privy to such disclosures until the IMF and World Bank Group hold their annual meeting on October 12-14 in Indonesia.
So, Mr. Trump now goes into this meeting in a weakened position because of his own nonsensical juvenile temper tantrum, which was on full display for the NOKO leader to witness and assess. Meanwhile, Leader Kim was out on the prowl in the streets of Singapore overnight, while the President stayed out of sight licking his self-inflicted wounds and continued with his twitter tirade of vitriol against PM Trudeau.
The world should be wary of Trump's stability and skeptical as to whether his word, in fact, means anything. It looks like the G7 summit was a waste of time...and has now become the G6 + 1.
* UPDATE June 12...
See my article here for an update on the results of President Trump's summit with Chairman Kim.