Why We All Need Trump’s Trade Reform To Work

By Bryan Rich

March 7, 3:00 pm EST

As we discussed yesterday, stocks have fully recovered the decline that people were attributing to Trump’s trade barrier announcement last week.

With that, the tariff hysteria seems to have subsided a bit, as they struggle for evidence to support their hyperbole.  Perhaps people may start acknowledging that we are now in a higher volatility environment, and that we will be slowly working out of this recent price correction until corporate earnings and economic growth data start confirming the benefits of tax cuts.

Interestingly, they seem to hate the trade threat, far more than the love the tax incentives and the pro-growth initiatives.  And while trade is a complicated issue, everyone seems to suddenly have an expert opinion on it.  And everyone is an expert on the Smoot-Hawley Act (which, by the way was a tariff on over 20,000 goods) and depression-era economics.

If they indeed were reflective about the economy, I think they would agree that we (and the world) desperately need growth initiatives to save us from terminal central bank life support (which wouldn’t be so terminal given they have fired all of their bullets to keep us afloat as long as they did).  And they would know that we are in for a perpetual cycle of booms and busts (repeat of the credit bubble and burst) if the trade imbalances (mainly between China overproducing and the U.S. overconsuming) ultimately are not corrected.

Now, as more of the conversation on trade turns more toward China, I want to revisit an excerpt from my note in December of 2016 (when Trump was President-elect):

MONDAY, DECEMBER 19, 2016 — “While many think Trump will provoke a military conflict, that’s far from a certainty.  With the credibility to act, however, Trump’s tough talk on China creates leverage.  And from that leverage, there may be a path to a mutually beneficial agreement, where the U.S. can win in trade with China, and China can win.  But it may get uglier before it gets better. In the end, growth solves a lot of problems.  A hotter growing U.S. economy (driven by reform and fiscal stimulus), will ultimately drive much better growth in the global economy.  And China has a lot to gain from both. Though in a fair-trade environment, they won’t get as much of the pie as they’ve gotten over the past two decades. But it has the chance of leading to a more balanced and sustainable economy in China, which would also be a win for everyone.”

Now, why not just focus on China now?  Because they will continue to abuse other countries. And those open trade channels will still allow that product to enter the U.S.  As we discussed yesterday, the global economy has been damaged by China’s currency/trade policy, yet the rest of the world has been relying on the U.S. to lead the fight.  They need to join the fight to create the leverage to make it ultimately work – so that the global economy can find a sustainable path of recovery and robust growth.

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