Categories: American NewsBusinessInternational NewsPolitics

What Is Trump After With His Trade Policy?

For Trump, Canada is just another country.

It’s a special one because it’s on the same continent, and there’s a free trade agreement that happens to include Mexico.

But to understand Trump’s approach to Canada, you have to zoom out and look at Trump’s approach to the world.

What Is Trump After?

Does Trump think a generalized economic crisis would be better (less bad) for the U.S. than for others?

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No, he doesn’t think that far ahead.

His approach is tactical. Moreover, his advisors repeatedly assure him that his trade war will not spread to other economic sectors or spiral out of control into a world recession.

Yet knowledgeable and experienced experts believe that a crisis in the euro currency area is inevitable. The only question is when: this year or next.

They say this, plus developments in the bond market, might then accelerate the EU’s adaptation to new politics in Europe, where the winds of change blow stronger than they have for a long time.

There are leadership transitions ongoing (either slow-motion or regular speed) in many EU member states, and many vital policy issues will test EU cohesion. The United Kingdom looks like its headed for a “hard-Brexit”, even if the Prime Minister has to be replaced to make it happen.

It will survive and re-invent itself.

As for Trump, what he wants right now is a U.S. strong economy going into the midterm elections in early November. He wants lower gasoline prices and concessions from trading partners.

The project for an EU banking union is dead.

The project for a common budget for all EU members is dead.

Germany will not rescue Italian banks again.

Whenever the financial market crises hit the euro again, it is like to be Italy that will first explode.

The new Italian deputy prime minister Mario Salvini continues to act confrontationally towards Brussels.

He would have no hesitation about Italy leaving the euro and beginning again to use the lira. This process might occur gradually, in stages over 5-10 years. Also, a new EU political leadership is coming, although we do not yet know who they will be.

As for Trump, what he wants right now is a U.S. strong economy going into the midterm elections in early November.

He wants lower gasoline prices and concessions from trading partners. And he wants them soon, if possible over the summer.

What worries him for the moment is that interest rate hikes by the Federal Reserve Bank might eat into or halt the economic boom that he promised his voters.

What Will Trump Get?

The new Chairman of the Federal Reserve System, Jerome Powell, appointed by Trump, is less concerned about possibilities for declines in the financial market and is less interventionist in terms of resisting market corrections.

He tends to think that economic cycles should run their course.

So Powell does not consider oncoming problems in emerging market economies (which are accelerating below the general radar) to be his problem, even if they would later threaten European financial well-being.

So Trump’s appointments to the Fed, in fact, all of them, may be his biggest short-term obstacle to getting what he is after. Either he didn’t pay enough attention to vetting them when he appointed them last year, or he just okayed a list that someone he trusted gave him, without really thinking about it.

The other side of the coin is that when the financial crunch finally comes in Europe and the world at large, there may well not be enough dollars to backstop foreign institutions.

That will lead to a run on the dollar, the value of the U.S. greenback will (at least for a while) soar.


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Published by
Robert M. Cutler

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