Judging by the ‘end of the world’ rhetoric and ‘catastrophic’ scare-mongering gushing forth from every orifice of the establishment, one might be forgiven for believing that Trump is the first president to ‘dare’ to impose tariffs on unfair trade ‘bad actors’ in recent decades… he is not!
As BofAML details in the table below, Presidents Obama, Bush, and Reagan have all imposed sizable tariffs on steel in the past…
And here is the performance of the S&P 500 during the Reagan administration’s era of protectionist lashings on the world…
Notice the rise then drop after each of the times Reagan imposed tariffs on Steel products.
As GoldMoney’s Alasdair Macleod concludes, the back story appears to be far deeper than some relatively minor tariffs on steel and aluminium would suggest. It comes after a prolonged period of shadow-boxing between America in the blue corner and Russia and China in the red. To pursue the boxing analogy, China and Russia have been soaking up America’s punches on the basis America would simply tire herself out. It has been a replay of Muhammed Ali’s dope-on-a-rope strategy in the rumble-in-the-jungle, with America cast as George Foreman.
However, in the last few days, China and Russia seem to have lost patience with America. Instead of patiently letting America gently decline through her own errors, the Asian superpowers are accelerating their own agendas regardless.
We do not know the real reason China and Russia appear to have changed their generally patient approach to American aggression. Perhaps it was inevitable that at some stage the internal politics in President Trump’s administration would lead to this conclusion. Perhaps it’s a twist in the financial war, with China’s oil and commodity suppliers pushing for of greater yuan liquidity in financial markets. China has finally agreed to this by setting a date for the new yuan-denominated oil futures contract to start trading. Anyway, the inevitable has happened: President Trump has finally decided to impose trade restrictions on China, and the Asian powers are accelerating their imperial plans.
America’s trade wars could have unintended consequences. They could end up with the two economic titans, the US and the EU, imposing destructive tariffs against each other. The effect on both economies will be to simply increase prices for consumers, when other price-inflationary factors are also coming into play.
Fortunately for the rest of the world, the days when the dollar was tied to gold and trade protectionism by America threw the world into the 1930’s depression no longer apply. The dollar can be expected to decline instead of commodity prices falling, as they did in the depression. The impact of America’s protectionism on the global economy today is therefore likely to be significantly less than following the Smoot-Hawley Act. But from an American standpoint, the principal victim of the trade war that commenced this week will be America herself.