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The Lobster King, America First And A Potentially Dangerous Chart

"It’s the same lobster".

“Peter Navarro’s going to be the Lobster King now, OK?”, Donald Trump said, during a truly amusing roundtable event in Bangor, Maine, where he spoke with aggrieved fisherman.

The president is upset about tariffs imposed by the EU and China on live lobsters. Or at least he pretended to be upset on Friday, while chatting with a group that included former governor, Paul LePage.

The transcript of the exchange is almost too funny to be true.

“You folks are going to tell me about the EU — okay? — with respect to their tariffs, because they’re like terrifying things”, Trump began. “So you’re going tell me about that — okay? — with regard to lobster”.

And they did – tell him about lobster, that is.

Below is an excerpt, which is generally representative of the back-and-forth.

THE PRESIDENT:  And how big is the tariff that the European Union charges?

MR. LEPAGE:  Twenty.  Is it — it’s 20 or 22.

THE PRESIDENT:  Okay.  And this country, because of stupidity, for years, hasn’t charged them anything.

MR. LEPAGE:  And the funniest part of this whole issue is the Canadian lobster we’re talking of and the Maine lobster come out of the same water.

THE PRESIDENT:  Are they the same lobster, would you say, basically?

MR. LEPAGE:  Yes.  They’re —

THE PRESIDENT:  Would you say they’re equivalent, as lobster?

MR. LEPAGE:  They’re equivalent.  They’re from the same —

THE PRESIDENT:  Is there a difference in size or —

MR. LEPAGE:  They’re the Gulf of Maine.

THE PRESIDENT:  — type?  Any difference?

MR. LEPAGE:  They’re coming out of the Gulf of Maine.

THE PRESIDENT:  It’s the same lobster.

That gives you the flavor, and Trump took the opportunity to equate lobster with BMWs and Mercedes.

“If the European Union doesn’t drop that tariff immediately, we’re going to put a tariff on their cars, which would be equivalent”, he said. As far as China (which has taxed live lobsters since 2018, when the trade war heated up), Trump promised to slap punitive duties on “something they sell that’s very precious to them”.

There has been virtually no progress between the US and the EU on a trade deal, and Trump frequently dangles the prospect of auto tariffs over the bloc. “Both EU officials and lawmakers stopped taking the threat seriously months ago”, Bloomberg notes.

But maybe they should take it seriously. And the same goes for China. Because one lesson from the trade war is that when things are going well both for the US economy and, especially for US stocks, Trump tends to ratchet trade tensions higher, as he believes he’s “playing with the house’s money”, so to speak.

Obviously, tensions between Washington and Beijing are running at a fever pitch. Ironically, nationwide protests in the US have seemingly had the effect of turning the dial lower – China has pounced on the opportunity to charge the US with hypocrisy vis-à-vis Hong Kong and other human rights issues, with state media and the foreign ministry pointing to police brutality and racial injustice as evidence that the US isn’t in a position to lecture other nations (see here and here). The administration was too distracted this week to respond with anything other than token soundbites.

But with the protests having turned largely peaceful (we’ll see what happens over the weekend) and the US labor market having stunned economists by adding 2.5 million jobs in May against expectations for 7.5 million more lost, Trump may be emboldened to turn the volume up on the trade war headed into the election.

The figure shows the relative performance of US equities versus their Chinese counterparts.

The better US stocks perform, the more brash Trump generally is when it comes to Sino-US relations.

This isn’t to suggest the president’s posturing in Maine on Friday was anything other than nebulous campaigning – pandering to locals with threats that shouldn’t be taken any semblance of serious.

But, it speaks to larger dynamic that defined markets in 2018/2019. When the US is on a roll (so to speak), the White House tends to get more aggressive on the foreign policy front, whether it’s trade or something else.

Beijing has largely turned the other cheek for weeks, despite being slapped repeatedly by Trump, Mike Pompeo, and a long list of US lawmakers. There is now so much pending legislation aimed at punishing China for a laundry list of offenses that most investors have found it impossible to keep themselves apprised.

One question going forward is obviously this: If both sides know China has no hope of meeting quotas under the trade deal, what is the point of pretending anymore?

The dollar has been on the back foot recently, thanks in no small part to the euro’s stupendous run predicated on monetary stimulus and concrete steps towards a fiscal union (this is a case were more easing is bullish for the euro, as it’s seen bolstering the economy). China, meanwhile, hasn’t weaponized the yuan.

Those FX dynamics help take some of the pressure off, but many still believe the dollar will prove stubbornly resilient, something Trump is notoriously loath to countenance. There are also those who think it’s not safe to completely rule out yuan depreciation, even if outright weaponization isn’t in the cards. Consider the following from a TD note dated last week, for example:

We detect a shift in policy maker tone regarding the USDCNY fixing. The proximity to recent political events suggests to us that Chinese policy makers will no longer subjugate renminbi policy to maintaining goodwill in US-China trade relations. We instead see policy makers prioritizing FX adjustment to the COVID-19 global trade shock, and assistance in easing monetary conditions. We however do not think that there will be an intentional outright politicization of the renminbi, which we would characterize by a substantial (10%-plus) idiosyncratic depreciation against the USD.

The bottom line is that if the US economy does rebound and US equities continue to surge, Trump may decide to dust off the “America First” narrative that played so prominently in 2016’s campaign, and which has “informed” (I use that term loosely) US foreign policy ever since.

On Friday, Germany learned the US plans to reduce the American troop presence in the country by 25%, pulling 9,500 personnel by September. The decision, first reported by The Wall Street Journal, blindsided Berlin. Clearly, it’s welcome news for the Kremlin, but I’ll leave that discussion for another time.

“The reason we have troops overseas in Germany is not to protect Germans, everything we have is for our benefit”, Frederick Hodges, a former top US Army commander in Europe told The New York Times. “The decision doesn’t seem attached to any kind of strategy”.

I don’t know, Fred. There’s probably a “strategy” – just not one that’s related to national security.


4 comments on “The Lobster King, America First And A Potentially Dangerous Chart

  1. kenneth Shaw says:

    Man is madder than a speared mackerel…..

  2. joesailboat says:

    The night of March 11 when he gave his COVID address and “inadvertently” declared to stop all shipments from Europe, the futures tanked.

  3. I have the fortune of spending 1/2 of my year in the great state of Maine, a place where the term “independent voter” still carries real meaning. I can tell you from interacting with fishermen and business folk alike that the lobster industry got hammered by the trade war, lobstermen here lost their biggest client in China and the business went to Canada. So yes, it is the same lobster and many in the state suspect Maine lobsters are still shipping out to China but through Canada and in “Canadian” packaging. Maine lobstermen are so enraged that I am expecting Susan Collins to lose her senate seat easily, something I would have never imagined 3 years ago. Good riddance if you ask me, time for Susan to “learn” her lesson.

  4. John Banjo says:

    hopefully Sara Gideon is a worthy challenger who will take Collins down.

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