Ever since being sworn in to office as President of the United States, people have tried to make sense of Donald Trump, the politician. It seems like just about every time he appears in front of a camera and microphone, sends out a new tweet or makes a new statement that another politico or Washington insider wonders out loud what the heck he thinks he’s doing. Democrats and even Republicans publicly shake their heads and say they don’t understand, either. On the one hand, he and the Republican party push dramatic tax cuts that are intended to keep the U.S. economy chugging along by putting more money back into American’s pockets – individually and on a business level. On the other hand, he imposes tariffs on America’s largest and most influential trading partners while using language that to most, seems clearly intended to antagonize and inflame the situation.
This morning when the market opened, investors got to digest the latest salvo in the U.S. versus China drama that started when Trump announced approximately $50 billion in tariffs against that country. Last week, China retaliated by announcing tariffs on approximately 126 U.S. good and services, but economists and analysts generally took China’s move as a measured response to the President’s more extreme opening shot across the bow, since the total of those tariffs amounted to only about $3 billion. Today China appears to have decided to take a queue from the U.S., adding tariffs another 106 more U.S. products that all considered add up to about another $50 billion, or roughly equivalent to America’s tariffs against them.
This second list certainly seems intended to inflict more pain, not only by the increasing number of products that are subject to tariffs, but also by what items are included. Where the first, smaller round of tariffs was made of items like dried fruit, stainless steel pipes, scrap aluminum and pork, the new list is clearly an escalation, including high-volume items like soybeans, aircraft, cars and trucks. As China seems intent on taking a tit-for-tat approach to counter the White House’s moves, the natural question now seems to be, what’s next?
The markets have continued to respond as they have to any and all news about tariffs over the last few weeks, no matter how large or small they actually prove to be. The market opened this morning with a big drop of more than 500 points on the Dow, in what looked like a classic, knee-jerk, “What the heck?” reaction, only to rally back and even finish the day up nearly 1%, or 230 points. That 700-point swing in a single session is a strong example of how volatile the markets have been since the last week in January.
Why the big swing? For one thing, the further we got into the day, the more we had an opportunity to really start to pay attention to the details. Hearing that China was imposing a 25% tariff on airplanes seemed, at first blush, to be a clear attempt to damage Boeing, for whom China represents one of its largest and fastest-growing markets. However, when industry experts actually looked at the specifications of the types of airplanes in the list, it became evident the tariff was directed at an older generation of 737 planes that are nearing the end of their production cycle. All but one of Boeing’s newer 737 jetliners are actually exempt, and so it seems there remains an argument to be made that the actual effect may be less painful than first believed.
One item that has also been causing concern today is soybeans; yellow and black soybeans both occupied the top spot on China’s updated list. As the world’s biggest importer of soybeans, China buys approximately one-third of the United States’ annual soybean production, with 2017 imports totaling about $14 billion. That’s a big number, and it seems to have put soy farmers in the U.S. in a tough spot, as they lobbied China to not avoid including their crop.
To the casual observer (and even to some of us who are not so casual) observers, it seems like Donald Trump’s willingness to rattle his saber as loud as possible is just making things worse. The President remained defiant today, tweeting comments like “When you’re $500 billion DOWN, you can’t lose!” Doomsayers are predicting that the further along things get, the harder it will be for either way to back down without losing face, which only increases the likelihood things will get much worse before it gets better. That is one of the reasons, I think that the market has been reacting in such a dramatic fashion from one day to next as the story unfolds.
But here’s the thing: nothing has actually happened yet. The tariffs announced by the U.S. in mid-March aren’t actually scheduled to go into effect until the end of May, and even as the made their list public, China made it clear that the actual imposition of their retaliation depends on whether the U.S. actually makes good on its threat. And even as both sides appear to clearly be trying to draw a line in the sand, they are also both still saying that a negotiated resolution is possible.
Two of the Trump administration’s most senior advisors, Commerce Secretary Wilbur Ross and Larry Kudlow, recently named the White House Economic Council Director, today both asserted that the administration wants to resolve the situation at the bargaining table. Ross called investor’s reaction “overblown” and pointed out, “Even shooting wars end with negotiations.” Outside the White House, Kudlow told reporters, “He (the President) wants to resolve this with the least amount of pain.”
The part of all of this that I find interesting, and a little humorous, is that experts and pundits continue to insist on analyzing this President as a politician. One of the reasons that he won the election is precisely because he is not, and never has been, a politician – he is first, foremost, and always, a businessman. That is the lens he sees the world through, not a political one. He occupies the most powerful political office in the world, that is true, but even in that setting and context his attitudes and tendencies as a businessman have taken the front seat from the moment to took the oath of office.
Examining the way Donald Trump, the businessman built his real estate empire (including going bankrupt and rebuilding it from nothing) provides insight into the way I think he approaches his job as President. More than a decade ago, the company I worked with engaged in discussions to partner with one of Trump’s several business interests, and when I talked to the people who were closely involved with those discussions, I heard a lot of the same things about Trump and the way he ran his business that we are now hearing from politicians about the way he approaches politics. He, and his entire organization, was argumentative, defiant, and confrontational from day one. More than once, it seemed that there was no way a deal would get done, and the reason often came from the confrontational nature of the process. But we kept talking, and eventually worked out an agreement that benefitted both sides. It became clear that confrontation – including heated confrontation – was a tactic Trump liked to use to move people closer to what he wanted. And it worked.
The truth is that Trump doesn’t care if you, or me really like him. I don’t think he really even worries about whether the people that voted for him like him today. He does seem intent on keeping the promises he made on the campaign trail, but I don’t think he worries what you think about how he does it. As a businessman, he focused on the end result, but how he got there, or what you thought about how he did it didn’t affect him. I think that as far as voters go, his belief is pretty simple: they will care more about whether he did what he said he would than they will about how he did it. In that same vein, he doesn’t care whether China, or anybody else likes him, or his approach to trade right now. Donald Trump, the President, is proceeding in exactly the same fashion as Donald Trump, the business tycoon. What we call a trade war, President Trump calls a negotiation.