10Y dollar emerging markets trade

This Shit Is Deeper Than Washing Machines: Markets Aren’t Ready For Trump’s ‘Hot’ Trade War

It's deeper than residential washing machines, folks.

On Wednesday, Steve Mnuchin – who is in Davos where he was shocked to find rich people – seemed to suggest that the washing machine wars ushered in by his boss earlier this week might be just an opening salvo in what could eventually morph into an all-out “hot” trade war.

In addition to the “weaker dollar is good for trade” soundbite that sent the already-downtrodden greenback even lower on Wednesday, Mnuchin said this:

Trade wars are fought every single day. So a trade war has been in place for quite a little while, the difference is the U.S. troops are now coming to the rampart.

Ok, so that’s a little aggressive, wouldn’t you say?


Ol’ Steve also sought to play down concerns about the possibility that China could retaliate by pulling their support for the U.S. Treasury market.

Over the past two weeks, we’ve variously documented the evolution of the commentary emanating from analysts with regard to whether it is or isn’t feasible for China to make good on that “threat” (note that the official word from Beijing is that the original Bloomberg story was something akin to “fake news”).

Generally speaking, it’s probably not possible for China to get too aggressive because i) economic reality dictates that the U.S. Treasury market is going to be the preferred conduit for Chinese flows, ii) getting overly aggressive when you’re still sitting on a massive pile of USTs would be Plaxico-ish, and iii) even if there is an epochal shift away from USD assets in global reserves, China might not be the “marginal diversifier“.

Still, the Trump administration is setting in motion something that has serious long-term consequences and Trudeau’s announcement of a “CTPP ex-U.S” this week only serves to underscore the contention that globalization and open trade is going to proceed apace with or without America.

Leaving aside the short-term implications (e.g. the consequences of a sharply lower dollar for the ECB and the BoJ’s plans to get more hawkish), what are the above-mentioned long-term consequences?

Well, that’s a question the scope of which isn’t amenable to a short blog post, but Bloomberg’s Richard Breslow took a stab at highlighting a couple of points on Wednesday following Mnuchin’s comments in Davos.

“Consider what long-term effects such go-it-alone unpredictability will have on reserve allocations,” Breslow implores, before adding that while everyone seems steadfast in the  “belief that the size and depth of the Treasury market makes it too alluring to be shunned, it’s a big risk to take [and] any sort of buyers’ strike would be felt quickly and definitively.” Or, to quote Kim Jong-Un, “surely and definitely”.

As to the investment implications for economies that might suffer in a “hot” trade war, Breslow notes that while “investing in emerging markets from the Pacific Rim is a widely popular expression of risk, actions so far this week have put the growth outperformance story for that region squarely in the trade war cross-hairs.” Here is perhaps the most important read-through from a geopolitical perspective:

Consider what this all means for Chinese hegemony in that part of the world and the standing of the U.S.

It’s deeper than residential washing machines, folks.


9 comments on “This Shit Is Deeper Than Washing Machines: Markets Aren’t Ready For Trump’s ‘Hot’ Trade War

  1. Okay, as I’ve been telling people of late, I admit that the other crooked candidate for president a year ago would have been better (actually I really mean “less bad”) than this gang. The only saving grace is no Larry Summers for the Fed, but that’s small consolation given Powell & Goodfriend, and especially that Mnuchin lapdog and the rest of this sorry bunch. Pathetic!

    • So you are one of them that voted for this dotard? Last year I chose to vote for the lesser of two evils but I do not think Hillary is crooked — there is absolutely no evidence. I only say ‘less evil’ because she has been beat up, rode hard and put away wet and probably deserved the win anyway.

      We ended up with the guy who could care less about doing good for America or actually doing anything for America’s average population — the goal was make him richer and all his elite friends (he has almost none of those) would love him and adore him and praise him. He set out to WIN, no holds barred, do anything, say anything, WIN – so he worked the numbers and pushed it all into control of the Republican Electoral Collage and those cowards did not have the nerve to do what was right for America.

      He did not compete honestly nor morally and he seized any opportunity, even making opportunities, to defame and dishonor every single opponent, his own party and the 2 others. His constant ranting and blathering kept the media focused on his fat ass/mouth and they too got sucked into his evil scheme to take over America because he believes that he is better than and smarter than (choke gag) any person on this planet. Just ask him.

      The only humorous twist to this horrible event is that now all that same free media for over a year (!) is now the Fake News. They still have cameras focused on him and relaying all his behavior and failures and he is desperately lying and trying to manipulate keeping the job he corruptly stole. I hope they stay focused.

      • Nope, I’m a twenty-something who like most didn’t vote, but at least in my case I’d already returned to the motherland like many young East Asians (parents: “but we made hard sacrifices to get set here for your future and now you’re going back…WTF?!!”).
        So I cannot be blamed, nor take any credit from someone else with the opposite perspective- lol.

        • LOL! I have renewed respect for you, bunny! and for your great parents for making sure you have a good life! 🙂

          • Yes honor thy parents. Difficult for them with children split between continents and it’ll be even harder when grandchildren. Skype doesn’t cut it. I use all my vacation days going to see them which sucks cuz time-off is rare and there’s much in the world to see, like I could if we weren’t living far apart. They insist I put my work and myself first, but thing is that seeing family IS putting myself first as it’s #1 thing I wanna do… Which I will again soon when luckily this year chinese new year and Presidents day holiday weekend coincide 🙂

  2. Trump is all self-contradictions. You can’t Make American Great Again – by withdrawing from global competition. Just the opposite. Unlike Trump – who is only great and a legend in his own mind – and or asserted by personal and now Presidential decree, the US can’t be great unless it competes and prospers from the competition.

    It is simple minded to think you are going to compete with economies that have nearly unlimited skilled workers competing among themselves for economic gain and that live at a far lower standard of living – similar labor in the US. Trump needs to understand and know more about the economics of the battles/fights he is picking. He needs to enforce the US’s primary skills of technical ingenuity and science – not think that he has the only ball as he takes it home. Evidence says he and his advisors have no in depth understanding of the interconnected economics of global competition and aren’t succeeding at this critical task. On the other hand – previous administrations haven’t excelled at the task of making the US more competitive either – but they haven’t made it worse – as Trump is.

  3. I kinda like a mid-range position in the world balance. To be the very top would be so stressful — always looking over your shoulder, expecting someone to pounce and try to take over your world position, constant changes in order to stay on the top. One side note on this one — I love my Amazon but seriously, a store with no employees will not benefit our society nor many that need those jobs. Carry this tech crap just so far and we won’t need any of us.

    Bottom position is clearly not acceptable on this planet. You don’t drop all you have struggled to have and learned how to do.

    Kinda snuggle into the middle and maintain a respected place, desirable place, peaceful place. Stop trying to take over being the highest producer of something in order to knock off the next guy up. Produce quality at competitive price but not so much to undercut the cheaper guys who struggle to maintain a decent society for their citizens. Help those we can afford to help and stop with the ‘make them earn it’ hatefulness that trump has drug over us. Produce your products in America and those suppliers should participate in that goal.

    Get rid of trump and his kind that preach Made in America but lie/cheat/import so they can make a few dollars more than you, Get rid of trump and his kind that preach Hire American but lie/cheat/sneak and hire hundreds of foreign workers on visas every year.

    Marty may blech on this one 🙂 Remember the Golden Rule and Peace on Earth.

  4. reply to bunny, above: 你很幸运 🙂

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