Trump Tackles Trade, Stressing Relationship with China
August 14, 2017
The White House is looking to address NAFTA renegotiations and trade with China this week. Markets are calming now that North Korean fears are cooling. The Bundesbank, Germany’s central bank, is supporting lower interest rates.
- Trump NAFTA promises bump into auto industry agenda. The Trump administration is launching the renegotiation of the North Atlantic Free Trade Agreement this week, a key promise of the President’s campaign. Trump’s criticism of Mexican production of cars is expected to play a key part in the negotiations. While the overall US trade deficit with Mexico (another figure the President has often criticized) is $64bn, the auto deficit is $74bn, meaning that any meaningful reduction in the trade deficit will target the auto industry. Car manufacturers are concerned, however, as a complex global supply chain involving parts from Asia has only recently made American car manufacturing globally competitive. Increasing standards of, for example, the rules of origin requirements (ascertaining fewer parts can come from outside North America), has the potential to raise costs. [Reuters]
- China reacts to trade probe, says investigation could “poison” relations. A state run Chinese newspaper indicated Monday that the Trump administration’s investigation into allegedly unfair trade practices could have a negative impact on Chinese trade relations. The President will be officially announcing later today the investigation into the intellectual property rules for US firms operating in China. Concerns about the investigation mount, as the potential for steep tariffs on China as punishment for unfair practices contrasts with the interest of some members of the business community, and the administration’s desire for Chinese cooperation in exercising its influence in North Korea. [Reuters]
Economic Indicators & News
- Markets edge higher as US officials calm North Korea fears. Volatility fell and US stock indexes increased as fear over imminent nuclear war decreased. Safe-haven assets, such as gold and currencies like the Yen and the Swiss Franc fell. US media focus shifted from the impending crisis, and the comments of US officials assuring the public that war would be avoided, to coverage of the white supremacist rally in Charlottesville. [Bloomberg]
- Bundesbank’s Dombret supports easy money, citing inflation. The problem of below target inflation rates as monetary policy makers consider rate hikes is not limited to the US. The European Central bank has kept in place many of the same policies it had during the recession, proffering an easy money policy of sub-zero inflation rates and massive bond purchasing, injecting money into the market. While Bundesbank’s Dombret has been critical of the policies in the past, in a speech in South Africa yesterday, he cited the very low recovery of inflation in the euro zone as cause to extend the program. Global monetary policy makers have been confounded by the realization that tight labor markets and other economic indicators have not been enough to push up lagging inflation, making rate hike decisions tricky. The ECB will reconsider its program in the fall, and is thought likely to continue to buy bonds, albeit at a slower clip, and keep rates low. [Reuters]