Much Ado About Everything No 31: The "whole ballgame is cars"

A China/US trade deal within four weeks would clear the decks for wider auto tariffs.

Yesterday's claim by President Donald Trump that a trade deal with China could be struck (other than a couple of weeks finalising the paperwork prior to a possible summit) within four weeks is certainly good news, not only for Sino-US relations but for the global economy as a whole. Mr Trump's optimism was echoed by China's top negotiator, Vice-Premier Liu He, with whom he had just met.

There are undoubtedly still some thorny issues to be overcome (notably enforcement mechanisms and whether current US tariffs on imports from China will be rolled back immediately or not); and the 'hawks' in Washington (USTR Robert Lighthizer and White House Advisor Peter Navarro especially) will continue to press for a maximalist deal. But there is a real sense that both Mr Trump and President Xi Jinping really want a deal and will overrule hardliners at home once they are convinced that they can adequately defend what is on the table.

Which takes me to my article of 18 January and the threat posed by a combination of Mr Trump's seeming obsession with auto tariffs and deep dislike of the European Union.

It was actually in a very different context that Mr Trump said, also yesterday, that "the whole ballgame is cars". ie his threat to close the border with Mexico completely over migration. He seems, for the time being at least, to have opted instead for demanding a complete halt to the cross-border flow of drugs within a year coupled with the threat of imposing auto tariffs if this does not happen.

A year is, of course, a very long time in politics in any circumstances...and especially in 'Trumpworld'. So, even if Mexico fails to arrest the flow of narcotics, there is no guarantee that Mr Trump would follow through. But the mere utterance of it is a timely reminder of the importance of the autos issue. Consider:

  • If Mr Trump's four-week target for a deal with China is realised, negotiations will be wrapped up during the first week of May;
  • Mr Trump would then not have to worry about the impact of fighting a trade war on two major fronts simultaneously if, as he may well be inclined to do, he does decide to impose auto tariffs on the EU (and, possibly, others including Japan and South Korea), a decision which he has to take no later than 11 May following the submission of recommendations under Section 262 of the US Trade Act by the US Department of Commerce on 17 February.

Although we can be reasonably confident that the consequences (at least initially) of imposing auto tariffs on the EU would not be as serious as an all-out Sino-US trade war despite inevitable EU retaliation, this would still not be good news for either the global economy or investor confidence.

Thus, I once again urge investors to keep in mind that, for the next few weeks at least, the real trade-related threat may be transatlantic rather than trans-Pacific.

Alastair Newton

www.alavan.biz

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