Monday, September 4, 2017

Trump has smart, experienced folks around him. Question is, will he listen to them?

If any of you happen to be cheering the latest rhetoric regarding foreign trade; specifically the notion that the U.S. will cut off trade with any country doing business with North Korea, and last week's head-scratching (given the timing) threat to abandon an existing trade agreement with South Korea, well, since we're here to talk about your portfolio, you might want to curb your enthusiasm.  
  emphasis mine...
President Trump's threat to stop "all trade with any country doing business with North Korea" appears implausible. China's exports to the U.S. were equal to about 3.5% of GDP in 2016. Turning that off would crater China's growth. It would also have a catastrophic impact on U.S. firms from Apple to Wal-Mart whose supply chains are inextricably linked with China. Japan, South Korea and Taiwan, also deeply integrated into Asia's supply chain, would take a significant hit.
Bloomberg Daily Economic Brief 
From the get-go my biggest beef with the President was his protectionist rhetoric. My astute friends and colleagues assured me that he's way smarter on trade than his words suggests, "after all, as a businessman he's been a posterchild for outsourcing goods, services and labor to foreign entities". Plus, he's going to surround himself with some really smart folks who'll instruct him not to go there. I believe that's the case. Question is, will he listen?     emphasis mine...
President Trump has instructed advisers to prepare to withdraw the United States from a free-trade agreement with South Korea, several people close to the process said, a move that would stoke economic tensions with the U.S. ally as both countries confront a crisis over North Korea’s nuclear weapons program. 
Withdrawing from the trade deal would back up Trump’s promises to crack down on what he considers unfair trade competition from other countries, but his top national security and economic advisers are pushing him to abandon the plan, arguing it would hamper U.S. economic growth and strain ties with an important ally. Officials including national security adviser H.R. McMaster, Defense Secretary Jim Mattis and National Economic Council director Gary Cohn oppose withdrawal, said people familiar with the process who spoke on the condition of anonymity to discuss internal White House deliberations.
Given the season, we should expect traders to be notably more sensitive to political rhetoric than they've been of late. Or, you might say, a pickup in volatility is very much in the cards, regardless of what'll be dubbed its catalyst. Therefore, what might otherwise have been background noise, might appear more serious simply given where we sit on the calendar.

That said, actually abandoning the existing trade deal with South Korea, not to mention NAFTA, would -- I assure you -- mean more to markets than mere background noise, regardless of the time of year! 

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