Trump and Trade: Risks remain heightened for aggressive action – Nomura

According to analysts at Nomura, the outcome of belief vs pragmatism in January could signal Trump’s direction

Key Quotes

“President Trump was not as aggressive on trade during his first year as many had anticipated. Despite his campaign promises, he did not withdraw the US from NAFTA, impose broad-based tariffs, nor label China a currency manipulator. However, he did take a number of other actions including withdrawing from the Trans-Pacific Partnership (TPP), beginning renegotiations with NAFTA and KORUS, and initiating a series of investigations into steel, aluminum, and China’s intellectual property policies.”

“The Trump administration will likely make a number of important trade decisions in January that will provide insights into how aggressive it will be later in the year.”

“Forecasting President Trump’s actions on trade involves a battle between two large competing forces: belief/base and pragmatism.

• Belief and Base. On one hand, Trump has stated strong, long-held views on trade, especially towards bilateral trade deficits and the perception that the US is not treated fairly in the international trade arena. A portion of Trump’s base appears to share similar beliefs, and Trump made a number of campaign pledges that he would take drastic actions on trade.
• Pragmatism. On the other hand, the media have reported that advisors and other sources have expressed concern over the economic impact pursuing aggressive trade actions may have. This includes potential stock price declines, negative economic effects for segments of Trump’s base (especially agriculture), and further exacerbating bilateral trade deficits. Moreover, adverse reactions to a more aggressive trade policy could favor the Democrats in this year’s midterm elections.”

“Additionally, there are several evolving factors that may alter the balance between these two forces.

• Personnel. Should the more moderate influences within the White House leave (such as National Economic Council Director Gary Cohn and Treasury Secretary Steven Mnuchin), President Trump may be more aggressive, reflecting his own views and those of USTR Robert Lighthizer.
• Foreign affairs. Trade issues with China have largely taken a back seat to foreign policy, namely the importance of China’s role with North Korea. However, should North Korea continue to make significant progress towards inter-continental nuclear missile capability, trade issues could regain prominence.
• Domestic agenda. With the passage of the tax bill, the Republican legislative agenda for the remainder of 2018 remains relatively sparse, which may allow President Trump to be less inhibited in pursuing a more aggressive agenda.”

“Overall, we believe the risks remain high around President Trump pursuing a more aggressive trade policy. Also, should the Trump administration tie national security concerns to international trade by invoking Section 232 of Trade Expansion Act of 1974, that would also serve as an indicator of the aggressiveness of the administration.”