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Financial markets have good reason to be rattled by the prospect of a showdown on trade between China and the United States. They have even more reason to be frightened by an increasingly unpredictable U.S. President.

Donald Trump is now waging war on multiple fronts. Internationally, he’s picking a fight with China, while also promising to move National Guard units to patrol the U.S.-Mexico border and denouncing the North American free-trade agreement as a “cash cow” for Canada and Mexico.

His bile isn’t reserved just for foreigners, though. He’s also threatening Inc., one of the most successful companies in the United States, for the supposed sin of using the U.S. Postal Service. The real issue, of course, is that Jeff Bezos, the billionaire founder of Amazon, also owns The Washington Post, a constant critic of the Trump administration.

For investors, the problem is that it’s difficult to predict where the U.S. President will turn next in his search for scapegoats. Economics and rational calculation don’t loom large in his feuds. Rather, he seems to want to settle scores and appeal to his electoral base ahead of mid-term elections in November.

For now, most observers prefer to see this week’s tit-for-tat exchange of tariffs between the U.S. and China as simply sabre rattling. According to this view, both sides will talk tough but ratchet down their threats over the next few months, before the latest proposed levies take effect.

That’s possible. Many of the standard havens for worried investors, such as gold and U.S. Treasuries, remained surprisingly calm on Wednesday, indicating widespread belief in a happy outcome. After opening down, stock prices rebounded.

But the potential for further escalation remains substantial. If the conflict is not so much about trade, but about Mr. Trump’s efforts to rally support ahead of mid-term elections, both Beijing and Washington could dig in their heels and refuse to budge.

China’s surprisingly strong and speedy response to the U.S. tariffs announced on Tuesday suggests that Beijing has thought through its strategy with U.S. voting patterns in mind. The Asian country’s retaliatory proposals, unveiled Wednesday, are heavily focused on soybeans, planes and cars – all industries centred in areas with lots of Trump supporters.

For his part, Mr. Trump is returning to his campaign style and throwing around both boasts and questionable numbers with abandon. “When you’re already $500-billion down, you can’t lose!” he told his Twitter followers. Never mind that the annual U.S. trade deficit with China is more like US$375-billion, or that bilateral trade deficits aren’t in themselves a problem, according to most economists. Mr. Trump is convinced that the United States is being victimized by Beijing.

The danger for investors is that the President’s protectionist instincts will now be allowed to run free. In recent weeks, many of his mainstream advisers have left. Among the more notable departures is Gary Cohn, the former Goldman Sachs investment banker who served as head of the President’s National Economic Council. He has been replaced by Larry Kudlow, a TV commentator.

Mr. Trump is simultaneously stepping up his attacks on perceived enemies, especially those linked to Mr. Bezos. The President has accused Amazon of exploiting the U.S. Postal Service and declared that The Washington Post is actually a lobbyist. Under the weight of those attacks, stock has lost more than 10 per cent of its value over the past two weeks.

Politics are now at the centre of many investors’ concerns. An RBC Capital Markets survey published this week reported that many money managers are worried about the potential impact of tariffs, trade wars and Mr. Trump. However, the survey showed little support among institutional investors for Democrats either. A slight plurality of the money managers would like to see the two major parties split control of the House of Representatives and Senate.

For now, the U.S. economy appears to be doing just fine and markets are taking matters largely in stride. But as the November elections come closer, all indications are that Mr. Trump and stock prices are likely to become more volatile, not less so.