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Money: Noise, from America

20 Mar 2018

This time I can’t help myself. I disregard most of the media noise that bombards us on investment or economic topics. It can be entertaining but often not very helpful.

Until this last bout of noise from America, announcing the start of a trade war, I was doing pretty well. But then again, I don’t look at Twitter, POTUS’s chosen method of making policy announcements[1].

President Trump twittered recently that there is nothing wrong with a trade war and that they are easy to win.

I’m glad I got that wrong.

To start off he announced a 25% tariff on imported steel and 10% on imported aluminium but with a number of exemptions. Most of America’s imported steel comes from Canada, the EU and South Korea, three of America’s strongest allies. Very little steel comes in from China although China is America’s second largest source of imports of aluminium. It has been the American trade deficit with China that Trump has talked up since before the election and if there was to be a protectionist move from Trump one would have expected it to be aimed at China.

Apparently most American Presidents in the past have introduced tariffs of one sort or another, sometimes temporarily and often on steel. That is not what the pundits are worried about. It is the claim that President Trump makes that he doesn’t believe in free trade altogether that is most worrying. He talked about it during the election and we have tried to forget about it, hoping that it would go away. Now we are having to face reality. Could this be the beginning of trade problems ahead for the world? An escalating trade war from which the world cannot possibly benefit?

There is danger for New Zealand if it does blow up into a major disruption to world trade. As a country we are more dependent than many on free trade and have spent the last 150 years trying to break down trade barriers.

Perhaps this latest move will force us more and more into the orbit of China, a much more outward looking country than America right now. New Zealand has choices.

Trump does not always follow through on his announcements. This may blow over or he might see the error of his ways. There are many strong-minded people around the world who are arguing against this latest development.

The European Union has drawn up a list of American exports it would hit with a reciprocal 25% tariff if America goes ahead with the steel and aluminium tariff. It includes cranberries and Harley-Davidson motorcycles, both from the home state of Republican Speaker of the House, Paul Ryan, as well as bourbon from Kentucky, the home state of Mitch McConnell, Republican leader of the Senate. As the President of the European Commission has said, “We can also do stupid.”

Keep asking great questions …

 

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[1] POTUS = President of the United States, a common form of slang in America. Trump announced the dismissal of his Secretary of State, Rex Tillerson, on Twitter recently who responded that he hoped one day Trump would find out on Twitter that he was being impeached.