Report filed by our trade correspondent, L.C.
January could see a major stock market correction depending on how the Trump administration handles a slew of protectionist trade measures with deadlines scheduled for this month. Most of the measures are aimed at the Chinese and could trigger Chinese retaliations.
The year 2017 ended with a flurry of articles in the press anticipating that President Trump would finally make good on his threats to take action on trade and against China early in 2018. The approach of the one-year mark in his presidency and the opportunity of the January 30th State of the Union address to vaunt his moves on trade add to the expectation for January action. This expectation is also buttressed by the tough anti-China rhetoric surrounding the December 18th release of the Administration’s National Security Strategy, as well as by Administration sources quoted in the press.
But January action had long been on the schedule for new trade moves anyway, in part because of some set deadlines, and also due to the completion of action on tax reform. Until the tax bill was enacted, the President had been persuaded not to do anything controversial that might upset some legislators whose votes were needed. The President had been further constrained by his hope that Beijing would help him in containing the North Korean threat. But that hope, he declared this week, has been disappointed.
Disagreement among the President’s advisers
Some of the press report that there is still strong disagreement among Trump advisers over what to do on trade. In the wake of successful tax reform, Axios reports, National Economic Council Director Gary Cohn and Treasury Secretary Steve Mnuchin are now trying to restrain Trump’s inclination for broad trade actions by arguing that they would hurt the stock market and undercut benefits of the tax bill. The two advisers are trying to steer the President toward limited, targeted actions that wouldn’t threaten a global trade war and economic instability. If these accounts are accurate, the President hasn’t made his final decision on a course of action. However, the time for decision is approaching fast.
Under consideration are actions against Chinese exports to the US of steel, aluminum, solar cells and modules, and large residential washing machines. The steel and aluminum measures are an attempt by the US government to penalize China for its metal sector overcapacity. So far there haven’t been any effective international efforts to do this.
One possible Administration response that would bring less likelihood of Chinese retaliation and would have much domestic support across-the-board (Democrats and Republicans, US exporters and companies that invest in China) would be to tighten the process for approving foreign investment in the US. The obvious target would be Chinese attempts by state-controlled entities to acquire US companies with high-tech, innovative, or military and communications-related assets. Bills to tighten the functioning of the Committee on Foreign Investment in the US (CFIUS) have been introduced, and the most likely one to pass now has Administration support. But the President could also issue an executive order affecting some of the CFIUS’s functioning. So CFIUS reform should be expected early in the new year, and it would be especially welcomed if it were undertaken instead of unilateral trade measures.
Administration stance toward World Trade Organization (WTO) still unresolved.
Also coming up in 2018, the Trump Administration has to decide how to respond to and use –