Trade wars: Only a stock market crash can stop Trump, 3 reasons


  • Trump continues pursuing a tough stance on trade on three fronts.
  • Concerns about trade dominate the headlines, but the impact is not decisive
  • An end to the "buy the dip" mentality can change the President's mind.

There is no letting down in US President Donald Trump's trade wars, on three fronts. In North America, the row Trump had with Canada's Prime Minister Justin Trudeau joined stalled NAFTA talks. The European Union is about to impose retaliatory tariffs against the US, and it will not be surprising to see a US counter-retaliation. 

And with China, the world's second-largest economy after the American one, the dispute is getting worse. After slapping China with tariffs worth $50 billion and the angry response, the Administration is now considering adding a 10% tariff on no less than $200 billion worth of goods

There are growing reports about the damage already done, with the most recent warning coming from Daimler, which directly linked trade to a lower profit margin. Canada is probably suffering more than any other country.

Nevertheless, stock markets are mostly calm. With every new development, equities lose some ground but recover within a few hours. The markets have a short memory for the latest worrying deterioration on the trade front but have a long memory for the "buy the dip" mentality

Yet while the pain in stock markets is temporary, the shock to the global economy is real. At some point, investors are going to realize what is going on and begin selling off.

And that may change Trump's mind. Here is why:

1) Donald ♥ Dow

The US President boasted over and over again about record highs in stocks, especially the Dow Jones Industrial Average. He stopped tweeting obsessively about stocks after they fell in February, but that does not mean he does not care. 

Once his name is attached to new lows and not new highs, he may rethink some of the moves.

2) The President can climb down under pressure

Trump has an image of being tough and doubling down on his outrageous claims when he is criticized. However, he is not immune, especially when it comes to pressure from companies. His decision to stop the separation of children and babies from their parents at the US border came after an immense public outcry. It is important to note that part of the protest came from three airlines that announced they would not participate in flying the separate children.

This pressure, not from Democrats or the media, contributed to the climb down. 

3) Investors are more critical than farmers to Republicans

This is the sad truth. US farmers, many of whom voted for Trump, already suffer the higher metal prices that are a result of the tariffs. However, they are a small and not that influential group. However, a fall in stocks hurt almost all Americans via their 401(k) programs and many households that invest in stocks. Moreover, investors really liked Trump up to now. They loved the deregulation, they adored the tax cuts which benefited them, and they were ready to forgive him for basically everything else.

But if they feel the pain in the pockets, they do not only have the President's ears but also Republicans' ones. The mid-term elections are not that far away, and donor money is needed to hold onto the House. A proposal to take away Trump's powers to impose tariffs is already on the table. To avoid such humiliation, he will need to tame down his instincts and change tack. 

The sooner stocks crash, the better for the global economy.

More: 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD extends gains to fresh seven-week highs

The American dollar is under selling pressure amid a better market mood. EUR/USD above 1.1140 ahead of several Fed’s speakers that can rock markets.

EUR/USD News

GBP/USD trades around 1.29 amid speculation of Brexit vote

GBP/USD is trading around 1.29 as speculation mounts about the fate of the Brexit deal. UK PM Johnson faces a test in parliament after securing an accord with the EU.

GBP/USD News

USD/JPY: struggles near mid-108.00s pivotal point amid weaker USD

US Dollar Index slumped to multi-month lows below 97.50. 10-year US Treasury bond yield adds more than 1% on Friday. Wall Street's main indexes look to start the day little changed.

USD/JPY News

China’s downward economic path offers no escape from its trade problems

There were no surprises in China’s GDP figures as the government portrays an economy slipping steadily lower giving little promise of improvement or support for the waning global expansion.

Read more

Gold turns flat above $1,490 as USD remains under pressure

After dropping to a daily low of $1,485, the XAU/USD pair staged a modest rebound during the American trading hours and turned flat on the day near $1,492.

Gold News

Forex Majors

Cryptocurrencies

Signatures