On Friday, you might be asking yourself “what’s next?” now that Trump has crossed the Rubicon and thrown the future of global and trade commerce into question.
The truth is, nobody knows, least of all Donald Trump. I’m sure the bully in him wants to believe that the decision to let the tariffs go into effect just after midnight will compel other countries to pander to his protectionism or otherwise make concessions.
Who knows, maybe he’s right to assume that.
Even if that assumption is borne out, it wouldn’t make him an expert “negotiator” or otherwise validate his claim to legendary dealmaking prowess. Rather, it would prove the world is still unsure what to make of an autocrat occupying the Oval Office and suggest everyone is willing to ride it out until he’s either impeached or fails to get re-elected.
Whatever the case, the market of course hates uncertainty. Just ask the animate remains of Wilbur Ross, which showed up on CNBC last week. Despite insisting there’s “no bright line” on the S&P that would force Trump to change policy, Ross (or what’s left of him) did admit that “the stock market hates uncertainty.” He also said this:
Everybody hates uncertainty, and the worst fear is the fear of the unknown.
So there’s some philosophizin’ from a man who spends every waking hour asleep (any “Waking Life” fans out there?).
In any event, Barclays has a handy timeline out today that might be useful for those of you looking for some semblance of guidance on this extremely fluid situation. After reminding you that Trump will implement the second round of tariffs (on an additional $16 billion in Chinese goods on top of the $34 billion hit on Friday) in two weeks, the bank outlines the “risk scenario” as follows:
In a risk scenario, we assume the US will proceed with the second round of 10% tariffs on USD200bn of Chinese exports to the US if a deal cannot be reached, given [Trump’s] likely determination to deliver on his promises to his electoral base in the run-up to the US midterm elections. In this scenario, we also assume the initial list of goods could be published during August-October, after the tariffs on USD16bn of goods are implemented in late July. We think the tariffs on the additional USD200bn of Chinese goods could take effect in late 2018 or early 2019, assuming the process of clearing the procedural requirements (eg, publishing a list of Chinese goods to be subject to tariffs, finalizing the list, implementing the tariffs) takes roughly three months, as in the most recent case. We updated our timeline of potential US and China trade measures (Figure 1).
As usual, that comes with caveats about how the actual effect of these ongoing escalations is impossible to forecast because the “first-order mechanical drag from the tariffs” doesn’t capture “additional disruption to business sentiment, and the likely ensuing spillover to investment and production, from both tariff and non-tariff restrictions.”
In other words, simply looking at the mechanical impact of the tariffs doesn’t capture the psychological effect of the uncertainty inherent in Trump’s headlong plunge into the unknown.
That uncertainty could well be the most consequential factor for markets.
Oh, and in case you were wondering, the Peak Pegasus didn’t make it on time…
Heartbreaking news: The ship carrying soybeans that was racing to China in an attempt to beat the tariff implementation didn't make it on time. https://t.co/CQ5wGaXxuL pic.twitter.com/8EBksLsJQi
— Joe Weisenthal (@TheStalwart) July 6, 2018
