Washington cannot paralyze trade for a long time without causing a colossal invoice of damage -economic and financial. Wall Street is confident that there will be agreement and that commercial peace will return.
President Trump is not mambrú. He went to war, and is back. You need to sign the peace of tariffs, and do it soon, to avoid the debacle of trade and a devastating adverse impact on activity, employment and prices. The epic of the day of liberation began on April 2 with bombs and dishes, and “reciprocal” sidereal tariffs for everyone. He ended bluntly a week later with Wall Street on the edge of the Bear market. From the euphoria for the moment that marked the rise of Trumpism, he passed, without scales, panic for a disastrous response and the event of a sudden moment Lehman. We had to withdraw the “reciprocal” tariffs and put them in the freezer – where they rest in pause mode for 90 days – to avoid a credit crisis. The exception was the US relationship with China where gresca did not cease. The mutual taxes climbed even more – 145% and 125%, respectively – and then what froze was the exchange between them. But Washington cannot paralyze trade for a long time without causing a colossal invoice of damage -economic and financial – of which, in addition, there is no need. The time to administer the thaw came. This Sunday, he announced that an agreement with China was reached, whose details will be revealed on Monday.
The commercial liberation crusade is an unprecedented economic policy fiasco, but it can still be worse. Trump knows. That is why he accepted the advice of his secretary of the Treasury –Scott Besent– To file the original initiative a few days after having launched it. That is why he hurried the current phase of generalized negotiation. And the announcement of the first commercial agreement has hurried last week, with Great Britain. “A historical agreement,” the White House boasted. Strictly speaking, the document is not written, it is a draft that will be completed in “the coming weeks” with some thick stroke guidelines. The imperative was to establish a statement that served to show execution, reduce stress and signal the peaceful intention. The announcement is a milestone, the zero kilometer of the long way back to a travel to amend the errors. Great Britain is a simple case to solve. It only explains 3% of the US international trade. It has no bilateral surplus and charges an average tariff of just 1%. In essence, Washington is satisfied to apply the 10% universal tariff that instituted the day of liberation, and forget everything else. It seemed convenient to London. Although, it was already said, the small print is still pending. The message is powerful. Dozens of bilateral agreements are in gestation and will take it as a reference. In the campaign, the electoral platform promised that: a 10% tariff for imports around the world, except for China that would obtain 60%. If it seemed excessive (the US’s average tariff was 3%), it is now a concession. And there we go.
Of improvised management of negotiation with China
The important negotiation, then, is with China. Trump argues: there will be an agreement, although it is not needed. “We are losing hundreds of billions of dollars with China. Now we are not essentially doing business with China. That is, we are earning hundreds of billions of dollars.” If it were true, formal conversations would not have started on Saturday in Geneva. Of each dollar that the US consumer spends on imports from China, just a minor fraction remains direct costs of production of the Asian manufacturer. The part of the lion is channeled to the pockets of the US companies in concept of design, marketing and marketing expenses, among other services, and profits. Abruptly cut that circuit – without having an alternative layout – is to risk a collapse of economic activity and employment. And would ruin the profitability of the main companies of the S&P500. Imports were anticipated in the first quarter – and more than 40% increased in conflict forecast – creating an inventory mattress, but the clock runs and puts pressure. Hence Trump hurries a decompression. And he already spread his first offer. An 80% tariff – in replacement of the prohibitive 145% today – “seems correct.” The Secretary of the Treasury is the one who must refine the negotiation. Besent traveled to Geneva with the aim of starting to descale tensions.
The management of the president looks improvised and predictable. It is obvious: Besent has a free way to close treatment in the 60% promised in the campaign. China needs the agreement, but has less hurry than Trump. Its exports grew 8% in April – thanks to the aggressive expansion of new markets – despite the collapse of businesses with the US. The negotiations for the purchase of Tik Tok were already seen as beijing dilate ad infinitum. AND While 70% of the owners of small firms in the US fears a recession, and 51% reprove the management of the president, the Bank of the People of China launched a monetary package of stimulus to better navigate the transition. Trump, on the other hand, presses the Fed to lower the rates, but cannot be imposed. Jay Powell was overwhelming on Wednesday. “If the great increases in tariffs announced are maintained, we will see more inflation and less employment.” Thus, Trump placed himself alone in an enclosure. China and Fed do not offer you another way out to go back. The president is arranged, but he must save his image and still wants to keep a high threshold of tariff collection which can take the withdrawal maneuver.
Trump must reinvent your agenda
Wall Street is confident that there will be agreement and that commercial peace will return. And he already recovered everything lost from April panic floors. The Fed prefers to see to believe it. But he expects comfortable with crossed arms because the economy still resists, and the president is already going back. Trump is who should reinvent his agenda. Without backing, the next scale is the recession and a rise in inflation. Yes or yes, you must change your libretto. That understood. But the task is not easy. “Children do not need to have so many toys. I don’t say they don’t have dolls, but they don’t need to have 30, they can’t have 250 pencils, they can have 5,” he said last week with a sudden realistic brushstroke. “The tariffs are enriching us,” Fanfarronea at times. And how saint now suggests that it is necessary to settle for less? Why could I throw butter into the roof? That new agenda will cause irritation. No failure is free. We already saw a sample button: Trump suggested the possibility of applying a small tribute to the rich to finance the tax reduction project that is negotiated in Congress. No one expected him, less from his mouth. And the Republican party entered boiling. The influence of the Secretary of the Treasury is noticed. The commercial agreement with Great Britain was very well received. But, in the bond market, long rates wore 4.40% and did not fall. Bad omen. Besent knows that the accounts will have to be rebuilt. That Trump understands it, it would be said to surprise positively.
Source: Ambito
