The Daily Update - Trump's discontent with global trade deals and the potential of tariffs

In chess there is an opening pattern called the ‘Trompowsky Attack’, or more simply ‘Tromp’, in which both players end up making sacrifices very early on. Last weekend Magnus Carlson opened The World Championship in New York City with the ‘Tromp’ in homage to Trump who just days before and a few miles down the road celebrated becoming President-Elect. Befittingly this opening, as much as the president-elect, is unusual and offers no certain advantage to those that opted for it – indeed the game ended up as a draw. 

The Republican whitewash will be keen to go for a similar fast attack, perhaps hitting the ground running by passing a tax cut and some fiscal stimulus and adjustments early on in their term. But the Executive Office remains as challenging and complex as it has ever been and the nascent flow of Cabinet and other appointments is stoking concerns not only of divisive agendas but also of competency. With over 4,000 positions to be filled there will be a lot of major appointments that will need to be evaluated by markets, some of which will also need approved by the Senate. The choice of Reince Priebus, Chair of the Republican national Committee, as Chief of Staff was settling especially as the post needed no approval or compromise. But announcing Steve Bannon, former executive chairman of far-right Breitbart News, as Senior Counsellor to the President in the same sentence could be just the beginnings of a brazen trend of nonconforming appointments. (Official announcement of the transition at greatagain.gov)

It should not be taken for granted how unusually scandal free the last 8 years of Obama administrations has been. The contrast this could have with Trump who has unprecedented conflicts of interest is unnerving. Even at this early stage he is losing legitimacy by only conceding responsibility over his financial assets to his family in a pseudo-blind-trust whilst simultaneously calling for them to have secret security clearances. In this, Obama’s recent consoling statements have a seeming subtext of disenchantment, perhaps easily overlooked due to his his respect for the Office of the Presidency. Saying that Trump has every opportunity to succeed seems more likely to be setting him up for a fall than calling for people to remain hopeful; it alludes to all the advantages the next government will inherit (unlike Obama) but could perhaps undo: from already low unemployment, rising incomes, strong international relations, cheap oil and stable financial markets (so far). On meeting Trump Obama commented, ‘Regardless of what experience or assumptions he brought to the office, this office has a way of waking you up’ clearly identifying the unrealistic rhetoric of the many Trump campaign promises adding, ‘the American people will judge over the next couple of years whether they like what they see’. 

Not being a traditional Republican, it is still unknown just how much friction he will face in the Senate. Already we have seen backtracking on Obamacare from being ‘repealed’ to perhaps just ‘reformed’, with the ‘wall’ on the Mexico border now likely at most a ‘fence’. But imposing tariffs are still a real possibility and worryingly a president withdrawing from a treaty may not need approval from Capitol Hill. The Anti-Ballistic Missile Treaty was revoked under George W. Bush so such a autonomous move has precedent and ‘it's generally understood that in U.S international law, the president has the authority to unilaterally terminate an agreement’ according to a constitutional law professor Michael Dorf. Such an unchecked authority in foreign affairs and repealing international agreements means the threat to growth of protectionism has few obstacles. If Trump faces frustrations and criticism for failures on other fronts the man who will almost certainly kill the TPP and once pledged to impose 45% tariffs on Chinese imports and 35% on imports from Mexico may have little hesitation in also going after NAFTA and conceivably even bargaining with membership of the WTO, which he has called ‘a disaster’. In a recent note from the Peterson Institute for International Economics Olivier Blanchard said such protectionist policies are likely to be at first ‘mainly symbolic’ and gradual in the face of lobbying. But he added that ‘things could quickly escalate’ which ‘would put into question global supply chains, disrupt production and trade, and decrease productivity.’