When Financial Markets Adapt to the ‘Trump Method’

After having feared the worst, Wall Street has grown accustomed to the American president’s blaring declarations, economist Jean-Paul Betbeze explains in a Le Monde column.

Is Wall Street beginning to understand Donald Trump? It looks that way! In fact, it’s on the rise again after having feared the worst: a trade war between the United States and China, a war that could lead to a global recession. What a tragedy! Today, it would seem that a discussion between the two protagonists could take place (so many conditions!).

Trump, however, started off quite strong, with $50 billion in threats, a 25 percent increase in tariffs on two products – steel and aluminum – plus demands on opening Chinese markets. China responded with a list of 1,300 products that they would tax, also at 25 percent: a shower of arrows against two rockets. But they also heard Trump’s message: It’s not a matter of a trade war… because the United States has lost, according to Trump himself.

Stopping the Drift

In a memorable tweet on April 4, he, in fact, explains that he doesn’t want a trade war: “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”

In fact, Trump hasn’t taken measures to start a war, but rather to stop the drift, by waiting for the rise. It is a matter of reinforcing monitoring of property rights, reducing the number of (Chinese) doctoral candidates, and financially pushing American and foreign companies to produce more within the United States, without taking into account the relaxed rules and regulations, notably in terms of the environment and construction.

China understands this logic of rebalancing trade: Its deep philosophy doesn’t like unbalance, especially of this magnitude, and even less in its policy direction. But their response is, above all else, tactical, as everyone knows that the discussion will address other themes: property rights and the conditions for establishing foreign companies. This is Trump’s true concern: allowing American companies, notably in trade or finance, to establish themselves in China, without connection to local companies.

Thus, financial markets have indeed liked the messages of Trump’s new economic adviser, Larry Kudlow. Well-known in the media as a Fox News (a conservative, American television network) columnist, he indicated that trade negotiations between the United States and China could end well, with most experts saying that no one would win a classic war. At the same time, news about NAFTA, the free trade agreement between the United States, Mexico and Canada, looks promising, according to Canadian Prime Minister Justin Trudeau. And then there’s the surprising evolution of North Korea.

The Trump Method

Fundamentally, the financial markets think there is a “Trump Method,” a twofold excess of threats and proclamations of friendship, as seen with North Korea, one minute wanting to destroy it and the next wanting to meet its leader, or on a minor scale, with Russia and China. And for that matter, Trump acts in the same manner with his European “allies” in NATO, or with his Mexican neighbors. No aid and protection without monetary compensation.

In fact, the political basis of his approach is the same: to strengthen his solid electoral base. But his logic is American pro-business: lowering numerous burdens and rules, a decrease of the American empire’s costs (for NATO or the U.N., but not for the army), support for company profits, and no concern if the dollar falls – that should be temporary.

His logic is twofold: Reinforce the productive American base and its exportation capacities. Reinforcing the productive base means supporting employment and pushing so that more Americans re-enter the job market (it’s a big issue caused by opioid addiction, which is a national tragedy that Trump mentions frequently). Supporting exports means opening emerging markets, notably those in China, to allow more permanent institutions, and reducing America’s foreign deficits.

Surely, this policy of “America First” can be judged as shortsighted or (as its name indicates) selfish, but it should become more and more understandable to financial markets. They will later see the limits of policies in the Middle East or Europe, or even economics if inflation rises quickly in the United States. But today, financial markets appreciate yesterday’s fear.