US: Foreign trade remains at the forefront - BBH

Last week's indication that the US Administration was preparing to put a 25% tariff on steel imports and a 10% tariff on aluminum sent ripples through the capital markets, explains the research team at BBH.  

Key Quotes

“It is the beginning of a tit-for-tat trade war, we were told.  Shades of Smoot-Hawley.  The system of checks and balances continues to unfold.”

“Republican leaders have pressed the President to reconsider, as they successful did on his stance on guns and immigrants.  Gary Cohn, head of the National Economic Council, has reportedly pulled together an industry summit to explain to the President why the tariffs will end up undermining the US economy and offset the beneficial impact of the tax cuts.”

“If persuasion is not sufficient, there is more Congress can do.  Republican Senator Lee has proposed a bill, the Global Trade Accountability Act, which would claw back some of the power the legislative branch has surrendered to the executive branch.  It subjects all trade action to Congressional approval.  There is scope for additional legislative action.  The President may want to extend Trade Promotion Authority, but Congress can block this in the coming weeks.  Also, there is talk of attaching an amendment to a bill that needs to be passed, such as the spending bill, that would block the tariffs.”

“One of the challenges of finding a veto-proof way to combat the tariffs is that there are many Democrats that are sympathetic to them.  However, this is not really new news.  Typically, trade legislation is backed by most Republicans and a free-trade wing of the Democrat Party.”

“Another element of resilience is the global equity market.  The threat of a trade war seemed end the recovery after the swoon early last month.  Yet, the S&P 500 reversed higher before the weekend and extended those gains yesterday.  A move above 2734 would re-target last week's high near 2790.  In the wake of Wall Street's strong gains yesterday, the MSCI Asia Pacific Index rose 1.3% today, snapping the five-day slide.  European shares are also advancing.  The Dow Jones Stoxx 600 is up 0.8% today, led by materials, financials and telecom.”