In late May, when the Washington Post reported that Donald Trump intended to move ahead with metals tariffs on Canada, Mexico, and the European Union, there was a sense of incredulity in markets.
Barely a week earlier, Steve Mnuchin struck what was variously billed as a “truce” with Chinese Vice Premier Liu. The Treasury Secretary subsequently told Fox News that the trade war was, for the time being, “on hold”.
“On hold” turned out to be 10 days, which is roughly how long it took the protectionist contingent to change Trump’s mind. The President’s refusal to extend waivers to America’s allies rattled markets and suggested that more escalations were not only possible, but probable.
Around the same time, U.S. officials announced that the administration was considering slapping tariffs on billions in auto imports on national security grounds.
That threat represented a new front in the trade war and it came with a series of characteristically ridiculous headlines, including a story in WirtschaftsWoche, that detailed a conversation the U.S. President allegedly had with Macron, who was informed that Trump intended to rid Fifth Avenue of Mercedes.
US President Donald Trump has announced to French President Emmanuel Macron to exclude German premium car makers from the US market. On Macron’s visit to Washington in April, Trump said he would maintain his trade policy until no Mercedes models rolled on Fifth Avenue in New York. This reports the WirtschaftsWoche, citing several diplomats from Europe and the United States .
In the two months since, analysts have variously tried to play down the notion that Trump would actually go through with the autos tariffs, even as the duties on China in connection with the 301 probe became a reality. Goldman, for instance, assigns only a 35% probability versus a 60% chance of further escalations in connection with alleged IP theft by the Chinese.
SocGen’s Albert Edwards doesn’t agree. In a note out late last month, Edwards said the following about how you needn’t be an economist to predict what comes next:
It doesn’t take a genius to see what’s coming down the line after completion of the current US probe into whether vehicle imports have damaged the US auto industry. President Trump has already told French President Macron to expect 25% tariffs on imported autos on the same ‘national security’ grounds used to impose US steel and aluminum duties in March [and] Trump has previously expressed his disdain at German luxury brands, particularly Mercedes [which he] has said he would tax off Fifth Avenue!
The speculation over the auto tariffs has weighed heavily on European automakers. BMW and Daimler have pulled no punches when it comes to communicating the idea that protectionism represents a clear and present danger, with the former telling Wilbur Ross that U.S. jobs are at risk and the latter being the first major company to cut guidance on trade concerns.
The STOXX Europe 600 Automobiles & Parts Index is down some 19% from its 2018 highs as investors fret about the outlook.
That’s the backdrop for Trump’s meeting with European Commission President Jean-Claude Juncker on Wednesday.
While folks like Larry Kudlow have been keen to suggest that a deal is possible and while there will almost surely be some kind of effort to spin the discussion as “constructive”, a Washington Post article out Wednesday morning suggests that the President’s advisors are increasingly concerned that Trump has already made his decision.
Several of President Trump’s senior economic advisers believe he plans to push forward with 25 percent tariffs on close to $200 billion in foreign-made automobiles later this year, three people briefed on internal discussions said.
Trump wants to move forward despite numerous warnings from GOP leaders and business executives who have argued that such a move could damage the economy and lead to political mutiny.
But Trump has become increasingly defiant in his trade strategy, following his own instincts and intuition and eschewing advice from his inner circle. He has told advisers and Republicans to simply trust his business acumen, a point he tried to reinforce Wednesday morning in a Twitter post.
Trump was apparently referring to recent discussions with GOP lawmakers in his “no weakness!” tweet on Wednesday morning.
“Juncker is expected to propose two ideas to try to calm tensions with the White House,” the Post goes on to write, citing European officials close to the situation who said that “one option would be lower tariffs among all major auto-exporting countries, while another would be a targeted deal between the United States and the E.U. to eliminate tariffs on industrial products, including cars.”
Again, this all comes back to whether Trump in fact wants a deal. It is entirely possible that he is caught in his own reality distortion loop where “proving” he’s serious is the only guiding principle.
It’s a kind of pernicious dynamic where he seems to interpret benign assessments of his bombast as a challenge – a test of his populist mettle, if you will. He then sets about doubling and tripling down until he elicits criticism, which only serves to exacerbate the situation to the extent he interprets that criticism as yet another test of his will.
Put simply: it’s increasingly clear that he is not, in fact, a rational actor. You can’t explain his bombast by claiming it’s a “means to an end” because there is no “end”, unless you count his never-ending quest to shore up his ego.
If that’s the case, then there’s nothing anyone is going to be able to say to stop him.
Ultimately, it may fall to Congress to do what some lawmakers suggested earlier this month: pass legislation that literally strips him of his ability to unilaterally dictate trade policy.
As for whether anyone supports this decision, I’ll leave you with one final excerpt from the Post:
The Commerce Department held an open meeting last week and heard from 45 different groups on the automotive review, with all but one cautioning against these tariffs. The only group that offered measured support was the United Auto Workers.