So Donald Trump and Peter Navarro appear to have lost at least a little bit of their nerve over the past 48 or so hours, and thank God.
Apparently, there’s going to be an exemption for Canada and Mexico on the steel and aluminum tariffs provided they prostrate themselves before Trump and agree to some kind of new NAFTA deal that allows him to tell his supporters he secured something “better” than what we had before. Who knows what that will ultimately entail, but what it means in the interim is that Trump has bullied his way into gaining some more leverage in the talks.
“One version of the plan, which was still being finalized, would give Canada and Mexico a 30-day exemption from the tariffs,” WaPo reported late Wednesday evening, citing officials. That grace period would be extended if necessary based on progress in the NAFTA talks.
Again, bullying people isn’t the best way to secure leverage. It’s one way to secure leverage, and in the short-term, it’s often the most effective way. The problem with that approach is that it requires constant maintenance. Leverage through intimidation requires an ongoing effort to intimidate and that entails a lot of work.
“The broader driver is still the focus on trade tensions and the possibility of escalation,” Sim Moh Siong, an FX strategist at Bank of Singapore told Bloomberg overnight, adding that “global risk sentiment seems to have stabilized somewhat” now that Trump and Navarro have confirmed they’re open to exemptions.
The loonie erased all of its losses incurred following Cohn’s exit and the dovish BoC. Sarah Huckabee Sanders helped in the press briefing on Wednesday afternoon (when she tipped the exemptions) and then overnight, following the WaPo story, USDCAD fell further before moving back up again this morning:
Whatever the case, China is furious. “A trade war is never the right solution,” the country’s Foreign Minister Wang Yi told reporters in Beijing today, adding that “in a globalized world, it is particularly unhelpful, as it will harm both the initiator and the target countries. In the event of a trade war, China will make a justified and necessary response.”
Maybe. But as Macquarie’s Larry Hu writes on Thursday, “China will do its best to avoid a trade war given the importance of exports,” so they could instead simply live with more yuan strength “and/or offer to further open the financial sector.”
Hilariously, we got this headline overnight:
- CHINA FEB. EXPORTS RISE 44.5% Y/Y IN DOLLAR TERMS; EST. 11.0%
Obviously The Lunar New Year holiday makes this impossible to interpret definitively, but don’t expect Trump to care about the nuance as China’s February exports to the U.S. were $31.7 billion while imports from the U.S. came in at $10.8 billion, leaving a surplus of $20.96 billion.
So there’s some tweet ammo in case he needed any.
