Trump Trade War Faces Domestic Pressure from US Business

2019-06-13 22:05:00

Dimitri Zabelin, Analyst

600 businesses urge Trump to end the US-China trade war
Fading domestic support may undermine negotiating power
We may see softer rhetoric or a truce if the President listens

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Today, over 600 hundred companies signed a letter sent to the White House urging US President Donald Trump to end the trade war with China. Relations between Beijing and Washington have grown more hostile as each side continues to test the resolve of the other. China’s Ministry of Commerce recently stated that they are willing to “fight to the end” if negotiations continue to sour.

Here is an excerpt from the letter:

“Tariffs are taxes paid directly by U.S. companies, including those listed below— not China. According to Trade Partnership Worldwide LLC, 25 percent tariffs on an additional $300 billion in imports (combined with the impact of already implemented tariffs and retaliation) would result in the loss of more than 2 million U.S. jobs, add more than $2,000 in costs for the average American family of four and reduce the value of U.S. GDP by 1.0 percent”.

A key takeaway here is the notion that the President’s tactics have not earned him support abroad and domestic discontent is eroding the credibility of his campaign to redesign the 21st century trading paradigm. Furthermore, farmers – a key constituency and a critical demographic to please ahead of the 2020 election – are also expressing dissatisfaction.

One of the ending lines of the letter says: “An escalated trade war is not in the country’s best interest, and both sides will lose”. Indeed, with international and now domestic pressure mounting Washington, it may force the White House to adjust its approach to China and could lead to softer rhetoric and a greater chance of reaching a deal – or at least a ceasefire – with Beijing.

If any form of the latter is achieved, sentiment-linked assets like equities, the New Zealand and Australian Dollars may rally at the expense of anti-risk currencies such as the US Dollar, Japanese Yen and Swiss Franc. Crude oil prices would also likely be granted a boon from an uplifted spirit in risk appetite considering the commodity’s fickle nature of frequently moving in tandem with oscillations in sentiment.

However, the President’s tactics suggest that any compromise will be viewed as capitulation – a less-than-optimal image to have ahead of the US Presidential election. He may also say to these companies what he said to Apple Inc in September 2018: Make your products in the United States instead of China. Start building new plants now. Exciting!

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