Trump tweets about trade confuse investors and policymakers around world: ‘Chaos breeds chaos’

US stock markets drop following investor doubts over China talks and Trump’s ‘Tariff man’ comments

After his Argentine steak dinner last weekend with Chinese President Xi Jinping, Donald Trump announced that they had reached an “incredible deal” to temporarily suspend his trade war. But two days later, Mr Trump tweeted “I am a Tariff man”.

World leaders, US policy makers and investors have once again been reminded over the past week that Mr Trump’s words “cannot always be trusted”.

On Tuesday Mr Trump proposed stripping away electric car subsidies from General Motors as punishment for the company moving to close plants in the United States and Canada.

But later his chief economic adviser, Larry Kudlow, said the White House would not do this, explaining that targeting would be illegal.

The president also routinely says that China and other countries are paying billions of dollars to the United States because of his tariffs. However, tariffs are paid by companies, often US firms, that import foreign-made products.

Following Mr Trump’s whiplash economic policies and announcements, US stock markets dropped on Tuesday amid investor scepticism of Mr Trump’s China talks.

The Dow Jones industrial average dropped 799 points, or 3.1 per cent, while the Standard & Poor’s 500-stock index fell 3.2 per cent and the Nasdaq dropped 3.8 per cent.

Global markets demand consistency and reliability, however Mr Trump makes knee-jerk announcements that surprise investors and lawmakers.

Even some of Mr Trump’s own aides and advisers sometimes find themselves reversing their course of action depending on the president’s whims.

“The words are noisy, but markets can’t wear noise-cancelling headphones,” said Diane Swonk, chief economist at Grant Thornton.

“You can’t delineate the noise from policy because sometimes the noise is policy. Markets like certainty. They need to know the rules of the road, whatever they are, to move forward.”

However, the lack of confidence in Mr Trump’s declarations goes beyond the economy. On Tuesday, some senators received a CIA briefing that they had demanded because they did not trust Mr Trump’s equivocations about whether Saudi Arabian Crown Prince Mohammed bin Salman ordered the brutal murder of journalist Jamal Khashoggi.

Afterward, Senators Lindsey Graham and Bob Corker said the CIA’s intelligence was unequivocal that the Saudi leader had ordered the killing – defying Mr Trump as they reaffirmed their desire to punish the kingdom.

There are increased signs that investors, after hanging on any signal from Mr Trump and his advisers about the status of economic planning, are beginning to understand that many of the statements lack any real substance.

Representative Bill Pascrell, top Democrat on the House Ways and Means trade subcommittee, criticised Mr Trump for an “unpredictable and chaotic” approach on trade that proceeds “with no rhyme and reason, and seemingly on the whims of the president”.

Referring to Tuesday’s Dow Jones drop, Mr Pascrell said: ”One hand doesn’t know what the other is doing.

“If neither investors or the public or even members of Congress know what this administration is doing, swings like this can’t be surprising.Chaos breeds chaos.”

Mr Trump’s aides have described the president as obsessed with the stock market’s performance, which he sees as a numerical validation of his personal performance.

Mr Trump spent much of late 2017 and early 2018 cheering big gains, which he claimed were stimulated by his presidency – in particular, his moves to cut taxes and roll back regulations.

But markets have moved wildly in the past two months, in part because of Mr Trump’s erratic policy pronouncements – a pattern that only seems to worsen when there are signs the economy is showing signs of future weakness.

White House Council of Economic Advisers Chairman Kevin Hassett brushed aside any connection between the stock market’s performance and Mr Trump’s economic approach.

Mr Hassett said weaker growth forecasts in Asia and Europe were dampening investor outlooks.

“The big change is that the Asian economies are slowing, European economies are slowing,” he said. He added later that “the US outlook is still very positive”.

However, numerous analysts believe economic growth will slow next year, with interest rates rising and the deficit continuing to expand.

Mr Trump often makes off-the-cuff – and sometimes inaccurate – statements related to the economy. Last Thursday, Mr Trump wrote in a tweet criticising General Motors for its plant closures and layoffs that BMW had “just announced a major new plant. The USA is booming!”

But BMW has made no such announcement. In response to questions, BMW said it was considering building a new plant in the United States at some point in the future, but the car manufacturer said it had made no decisions yet.

Analysts attributed Tuesday’s market jolt to uncertainty about Trump’s dinner on Saturday with President Xi Jingping in Buenos Aires on the sidelines of the G20 summit. US and Chinese officials have publicly disagreed over several substantive points.

Chinese officials did not confirm the White House’s initial claims that China had agreed to buy large amounts of US agricultural products and remove tariffs on US cars.

Mr Kudlow later said there was not an actual agreement for China to remove car tariffs, but he said that he expected Chinese to eventually do it as a measure of good faith.

Adding to the confusion, Mr Trump sent a series of tweets on Tuesday morning threatening import penalties on Chinese products.

“President Xi and I want this deal to happen, and it probably will,” Mr Trump wrote on Twitter. “But if not, remember I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.”

A former White House official explained that Mr Trump considers his unpredictability and sudden shifts as a virtue because he thinks it helps ensure his opponents – in this case, the Chinese – stay off balance.

“It introduces so much confusion and chaos into a situation that by the time it’s all over with he’s the only one who really knows what he thinks, including his own staff,” said the former official, who requested anonymity to candidly discuss Mr Trump’s tactics.

Andy Laperriere, a trade specialist and head of US policy research at Cornerstone Macro, said, “There is a sense that what was portrayed as meaningful progress, when you look at the fine print, doesn’t feel that way.”

“In reality, China did not agree to reduce or eliminate the tariff on cars,” he continued. “They haven’t agreed to any specific purchases of agricultural products. And I think even more importantly, China does not seem inclined to make any concessions on the big issues that would be the subject of negotiations over the next 90 days.”

Treasury Secretary Steven Mnuchin said: “The market is now in a ‘wait and see.’ And the market is trying to figure out if there is going to be a real deal at the end of 90 days or not.”

One reason for the confusion is the lack of any formal document or agreement from China and the United States detailing progress.

In past White House officials had lengthy discussions about foreign and domestic policy changes, and briefed policy makers and outside allies ahead of time to ensure there would be no surprises.

But in the case of the China talks, the public was left to read a White House statement and comments from Chinese officials and then interpret Twitter messages from Mr Trump.

Brian Gardner, director of Washington research at Keefe, Bruyette & Woods, said three factors are conspiring to spook investors: Confusion over what was accomplished in the Buenos Aires dinner, Mr Trump’s “Tariff Man” tweet that suggests his administration’s trade hawks may be ascendant, and signs of a possible coming recession.

“Individually those are all negatives,” Mr Gardner said. “Collectively, it’s an unholy trinity, and that’s what we have today.”

Washington Post