An now, stand by for a message from the President:
Larry Kudlow will be my Chief Economic Advisor as Director of the National Economic Council. Our Country will have many years of Great Economic & Financial Success, with low taxes, unparalleled innovation, fair trade and an ever expanding labor force leading the way! #MAGA
— Donald J. Trump (@realDonaldTrump) March 15, 2018
So there’s Dennison, chiming in a little later than usual with his morning Twitter brief for the nation. Larry Kudlow should enjoy the praise while it lasts because all it’s going to take is one “wrong” move before #LoserLarry is trending.
For now, Kudlow gets to enjoy the Twitter honeymoon and the market’s immediate focus will be on whether and to what extent he manages to dissuade Trump from escalating a global trade war.
This got off to a characteristically cartoonish start when CNBC “interviewed” Larry as a guest on Wednesday afternoon, which is about like Sesame Street “interviewing” Big Bird, and here’s what he had to say about trade:
I must say as somebody who doesn’t like tariffs, I think China has earned a tough response not only from the United States.
A thought that I have is the United States could lead a coalition of large trading partners and allies against China, or to let China know that they’re breaking the rules left and right. That’s the way I’d like to see. You call it a sort of a trade coalition of the willing.
Great start, Larry! Liken the push against China’s trade practices to an ill-fated invasion of a sovereign country devised under false pretenses and undertaken by someone who history is only smiling on now because the current President is so bad that all of his predecessors are Abraham Lincoln by comparison.
Well anyway, Goldman is out with something new that seeks to predict who Trump might target going forward based on the assumption that “the Administration may focus on countries and/or products where there are large bilateral tariff differences.” To wit:
First, the five countries with particularly high bilateral effective tariff rates relative to the US are Thailand, India, Argentina, Brazil, and China. Of these countries, Thailand, India, and China also run bilateral trade surpluses with the US. Second, effective bilateral tariff rates for the European Union and Japan are very close to US levels—so the car example is not representative of EU and US relative tariff rates more broadly. Third, several countries in this group have lower effective bilateral tariff rates compared with the US, including Indonesia and Vietnam, which run trade surpluses with the US.
What you’re looking at there are countries that are major US trade partners that are not members in a US free-trade agreement. The data covers “‘most favored nation’ rates—the rates charged to WTO members other than FTA partners—on over 5,000 individual products.” The blue bars represent trade partner tariffs on US products weighted by US export volumes while the red bars represent US tariffs on imports weighted by US import volumes from the indicated markets.
As Goldman notes, the whole European cars strawman is just that – generally speaking, bilateral tariffs between the US and the EU aren’t really that disproportionate at the aggregate level. At a granular level, this is what the picture looks like:
So clearly, there are asymmetries here and, as Trump would put it, “on many sides, many sides.”
As far as drawing conclusions about which countries will likely bear the brunt of Trump’s aggression, Goldman notes the obvious which is that China is at the top of the last because “not only are effective tariff rates relatively high, [they] also run the largest bilateral trade surplus of any country.” That said, it looks like Thailand and India could be at risk as well.
Take all of that for what it’s worth and remember, when it comes to “unparalleled innovation” like that which Trump boasts about in the tweet shown here at the outset, nothing says “innovation” like aggressive protectionism.