US President Trump is intent on disrupting the post-WWII arrangement that prioritized ideological conflict over economic rivalries. Last week, it was reported that Trump told his counterparts at the G7 summit that NATO was as bad as NAFTA. NATO’s annual meeting is July 12. Trump seeks a realignment of alliances and appears to prefer the illiberal forces that arisen in recent years. The US Ambassador to Germany was recently quoted expressing a desire to “empower” the populist- right.
Even if US Treasury Secretary Mnuchin is right that the President has not decided to withdraw from the WTO, which would need Congressional consent, despite talking about it, Trump’s hostility to it is becoming an economic force. At the recent ECB conference, there was a common warning from Powell, Draghi, Kuroda, and others, that trade tensions were risk to the economic outlook. Last week, two more Fed officials, Bostic and Bullard, shared a similar assessment. Bullard, for example, talked about the “full-throat angst” the trade tensions were causing among businesses.
The week is bookended by tariffs. On July 1, Canada’s retaliatory tariffs of 10%-25% on $12.8 bln of US goods take effect. Whatever definition of national security that is elastic enough to define steel and aluminum from Canada as a national security risk can include anything. Commerce Secretary Ross said that the results of the US investigation into auto imports national security grounds are likely in July or August. Public hearings will be held on July 19-20.
At the end of the week (July 6), the US will impose an addition 25% levy on $34 bln of Chinese goods for intellectual property right violations. China has indicated it will retaliate in kind. There is another $16 bln in goods are waiting for the final decision that will be subject to the tariff. The US has threatened to impose another 10% tariff on $200 bln of Chinese imports for its retaliation.
