Trump Administration Continues to Hammer China and Others

The Trump administration continues to hammer China and other countries with tariffs or at least the threat of tariffs. At this point there are three fronts where the President has focused his efforts to change trade: NAFTA, China and Steel.

The newest tariffs were announced on Tuesday and they were aimed at China. Specifically on Chinese technology and they could affect up to $50 billion in goods. The rate of the tariffs is 25% and the list of products it applies to will be announced by June 15.

The announcement came as the two countries continue to negotiate a trade deal and after China committed to buying more U.S. exports. Commerce Secretary Wilbur Ross is expected to visit China later this week for the third round of meetings.

There is also another round of NAFTA negotiations going on this week as the U.S., Mexico and Canada continue to work through the agreement. Canadian President Justin Trudeau stated on Tuesday that, “no NAFTA is better than a bad deal.” He went on to point out that Canada imports more U.S. goods than China and Japan combined.

In fact, Canada imports more U.S. goods than any other country with 18.3% of U.S. exports going to our neighbors to the north. Mexico is second with 15.9% of our exports going to our neighbors to the South. China is third at 8% and Japan is fourth at 4.4%.

While it is a noble cause President Trump is taking on, it is also a dangerous game he is playing. So far his approach has been threatening tariffs on the goods brought in and then offering something less in exchange for a concession from the other side. At some point this strategy could backfire and could lead the other side to put bigger tariffs on U.S. goods. This could create a terrible economic environment and could send the U.S. in to a recession. It could even lead to a global recession.

One aspect of breaking off NAFTA and threatening to nullify other agreements that I haven’t seen discussed is the trust factor. NAFTA has been in place for several decades and needs to be revisited. However, pulling the U.S. out of the Paris Agreement on climate concerns and backing out of the Iran nuclear deal could lead to distrust in the future.

President Trump has made it clear that he would like to undo a number of agreements that President Obama entered in to. What is to say that a democrat wins the Presidency in 2020 and then in a tit-for-tat decides to undo any and all agreements President Trump enters. How will this look to the world? How will any country or any other governing body such as the EU enter a long-term agreement with the U.S. and expect it to be upheld?

As I stated before, what President Trump is attempting to do is a worthy cause. There are too many inconsistencies in international trade and the playing field needs to be leveled to a degree. However, the international trade field isn’t a flat playing field. There need to be certain imbalances for countries to operate efficiently.

Up until now President Trump has pushed and then stepped back, pushed and stepped back. You have to be careful with this strategy because you may push too hard and instead of the other side pushing back, they punch back.

How far is President Trump willing to go? Is he willing to push this agenda to the point that it throws the U.S. and the rest of the world in to a recession? Is he willing to endanger the trustworthiness of the country when it comes to negotiating with other countries?

It is a dangerous game he is playing. Let’s hope the focus remains on the goal of bettering trade and that the outcome is successful for all involved. International trade isn’t a zero-sum game where one side wins and the other side loses. If they are done properly, trade agreements are good for all the parties involved.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

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