- President Donald Trump has entered a cycle intended to mitigate initial hard talk about trade disputes.
- The relaxation of Trump's new tariffs on China and metals could be a positive sign for the US economy.
There is a pattern in the trade movement that has received much attention from President Donald Trump in recent weeks: Trump announces dramatic tariffs in the White House, only to retire in the following days and weeks.
"President Trump is for many the big bad wolf," said Fraser King, an analyst at Citi, on Monday in a message to clients. "But unlike the Grimm fairy tale, he snorts and he blows, but he rarely blows down the house."
The attitude has led to days of looking in the markets. On Tuesday, for example, the Dow Jones Industrial Average fell more than 350 points, fearing that the Trump administration might crack down on China's investment in US technology companies. On Wednesday morning, Dow futures had risen as fears of a trade war subsided under Trump's praise of Chinese President Xi Jinping. Overall, Trump's distress seems to be tackling the government's recent repressions, and that could be good news for the US economy.
"Trade talks with many countries that have not treated the United States fairly for many years," Trump tweeted. "In the end everyone will be happy!"
Trump resigns with allies …
Fears of Trump's crackdown began with his announcement of tariffs for steel and aluminum imports into the US on March 1.
First, Trump and some government officials said that no country would be exempted from these duties. It sparked a turmoil of US allies such as Canada and the European Union, which pledged to repel the US with its own trade restrictions.
In the next few days, however, the Trump administration began to withdraw. First, Canada and Mexico were exceptions – then began negotiations with other allies.
Last week, the government said that the European Union, Australia, Argentina, Brazil and South Korea would receive exceptions until the renegotiation of certain trade agreements. This means that five of the top ten steel importers in the US are not subject to the new import tax.
… and also China
Then Trump announced tariffs on Chinese imports of $ 50 billion last week. Trump also promised that it was only the "first of many" against China.
China pledged retaliation, saying that the country did not want to shy away from a trade war, and speculated on economists and investors.
But within a few days of the announcement, sentiment changed again. On Sunday, the Wall Street Journal reported that the US and China are entering into negotiations to reduce trade tensions between the two countries. The report said it may even result in more US access to the Chinese market.
"The tough talk of trading is more of a cultural club where you can create political excitement and build on the momentum of the deal maker brand," said Chris Krueger, an analyst at Cowen Washington Research Group. "After all, Trump used the word" negotiate "more than" tariffs "during his 232-proclaimed signing, and Trump just wants" profits "and wants to define trade profits in his own way."
It could be good news for the economy
Greg Valliere, global head strategist at Horizon Investments, said Trump's distress points to a weakening of the president's protectionist leanings.
"The temperature is falling because the US is exempting most of its allies from the steel tariffs and the Trump government is cooling the rhetoric," Valliere wrote on Tuesday. "Our guess is that Top Wall Street leaders came to Trump, Steve Mnuchin and others last week and told the government officials they'd call back and they have ."
Economists fear escalating a trade dispute, with ever-increasing restrictions that limit the flow of global goods and drive the US into recession.
However, the gradual easing of tariffs seems to be a pattern that could limit their impact and ultimately avoid the worst consequences of a trade war.
King, the Citi analyst, said Trump's changes to his measures and China's reluctance to engage in a protracted trade battle have limited the likelihood of a full-blown trade war.
"Much more likely is China coming to the US with some form of compromise solution, Trump can claim a big profit, and the world is returning to trading some products with some slight adjustments," King said.