Just when you thought it was safe, “tariff man” makes a cameo.
“Brazil and Argentina have been presiding over a massive devaluation of their currencies which is not good for our farmers”, Donald Trump said, in a pre-dawn tweet. “Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the US from those countries”, he added.
Stocks immediately sank.
Naturally, Trump took the opportunity to lambast the Fed.
“The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies”, the president screeched. ” This makes it very hard for our manufactures & farmers to fairly export their goods”.
Recent economic data suggests the US economy is holding up reasonably well, a state of affairs which, absent further trade banter, would likely harden policymakers’ resolve when it comes to staying on hold in the interest of preserving the “mid-cycle adjustment” characterization of the three rate cuts delivered since July.
But Trump has consistently used trade escalations as a way of engineering looser Fed policy. Earlier this year, it seemed to occur to the president that if he could compel the rates market to price in cuts, he could effectively corner Jerome Powell by forcing the Fed to choose between holding their ground and risking an unwanted tightening of financial conditions, or acquiescing to STIR traders’ “demands”.
The December Fed meeting is next week, and Trump appears to be making his move. “Lower Rates & Loosen – Fed!”, Trump demanded on Monday.
Over the past week, we (and plenty of others) have variously warned that with US stocks perched near record highs, Trump would be predisposed to believing he’s “playing with the house’s money”, and thus more inclined to ratcheting up the trade banter.
Sure enough, he mentioned stocks on Monday in his broadside against LatAm.
“US Markets are up as much as 21% since the announcement of Tariffs on 3/1/2018 – and the US is taking in massive amounts of money”, the president declared.
What he doesn’t mention is how much US stocks were up from his inauguration through his infamous “trade wars are good and easy to win” tweet. It’s clear that the tariffs have been an albatross around the market’s neck and have partially offset the boost from the tax cuts.
By attacking Brazil, Trump risks a clash with an ideologically similar strongman who he’s showered with praise, including during a controversial visit to the White House earlier this year. With Argentina, it’s just insult to injury for a country marking a tenuous return to leftist government.
Last week, Brazil’s central bank intervened to stem losses in the real after it slid to a fresh record low above 4.2765. It’s down some 10% on the year, and fell more than 5% in November alone. Rates in Brazil are at record lows. Last month, Bolsonaro said he’d like to see a stronger currency. Ironically, he blamed the trade war for some of the real’s troubles.
“I would like the dollar below 4 reais, but it’s not merely a question of domestic issues”, he told reporters in Brasilia on November 20. “There’s US and China trade and the issue is that the whole world is interconnected. Any problem abroad has consequences for the entire world, not just here”.
“Ironically, Argentine policy makers have been trying to shore up the currency for years and have even resorted to stringent currency controls [while] Brazil’s real is weakening largely because of expansive monetary policy driven by lack of growth”, Bloomberg’s Sebastian Boyd wrote Monday. “Its central bank has intervened to strengthen the currency, not the other way round”.
In any event, this suggests Trump is agitated (his ire likely exacerbated by the impeachment proceedings) and prone to aggression, less than two weeks before the deadline for deciding whether to nix the next planned tariff escalation with China. Beijing wants more. A tweet from the Global Times over the weekend said Xi will accept nothing less than rollbacks to existing tariffs. Other reports suggested the signing of the Hong Kong bill is holding things up.
Trump capped off his broadside on Monday by reminding everyone that he’s recycling tariff revenue (which China isn’t paying) as welfare to farmers.
“[I’m] giving some to our farmers, who have been targeted by China!”, he exclaimed.
Studies show the vast majority of the farmer bailout money goes to the wealthy, not everyday growers. Unsurprisingly, Trump aides and advisors have received millions in funds.