Goldman: If Trump Wants To Win A Trade War, The Market Has To Crash
3 June, 2018
Now that the Trump global trade war ceasefire is over with both allies (Canada, EU, Mexico) and adversaries (China), the hot takes are coming in, and none more exhaustive than a note by Goldman Sachs released overnight, in which economist Alec Phillips writes that less than two weeks after Steve Mnuchin declared that the “trade war is on hold," a statement which China trade hawk Peter Navarro subsequently blasted as inaccurate, Trump's policy has shifted substantially and "following trade announcements over the last few days, the trade war does not appear to be “on hold” but simply "on", leaving even longtime observers of trade policy confused about the direction from here."
Since taking office the President has cited many examples of “unfair” trade policies where foreign tariffs are higher than US tariffs on the same product.
... we do not expect trade policy risks to fade anytime soon. While we think that financial market sentiment around trade issues is unlikely to become as negative again as it was in early April, when the President floated the possibility of tariffs on another $100 billion in imports from China, we do not expect markets to become entirely comfortable with the outlook for trade policy, either.
It seems unlikely that the US Administration will be able to convince financial markets that the trade war is “on hold” while convincing trading partners that tariffs might be imposed. Assuming that the White House will try to maintain maximum leverage, markets are likely to assume that further trade restrictions are likely to be imposed.