US trade policy: Concerns are likely overdone – Goldman Sachs

Offsetting the post-election optimism over President-elect Trump’s increased emphasis on his pro-growth policies (and softening of more controversial issues), protectionist trade policy tops the list of policy priorities on which economists and global markets have been most focused notes research team at Goldman Sachs.

Key Quotes

“We share these concerns but, relative to market views, we think the popular media narrative on the downside risk of a trade war is overstated.”

“When asked for his philosophy on trade, President-elect Trump answers “I’m a free trader. I want free trade, but it’s got to be fair trade.” And on his transition website, his policy statement on trade begins “Free trade is good as long as it is fair trade.” Considering that the Republicans in control of the House and Senate are committed free traders, we think that President-elect Trump will take a far more practical approach to US trade policy than his campaign rhetoric would suggest. Trump does not defend protectionism, but rather says he intends to push back on unfair trade practices.” 

“Of course, US-China trade tensions are already elevated. In May 2016, for example, the Obama administration levied a 522% tariff on Chinese steel in response to dumping charges. While the tit-for-tat strategies commonly deployed in trade negotiations can devolve into trade wars, this is not our baseline expectation. Our tentative view is that Trump’s use of punitive tariffs will be just as pragmatic as President Obama’s, albeit more vocal. This remains to be seen, of course, and we see a risk that Trump might be tempted to overplay his hand in trade negotiations. He has also threatened to “repeal NAFTA”. But this would be a disaster for US growth, which Trump surely hopes to avoid. Instead, we think, his intent is to renegotiate it. Any trade agreement involves horse-trading over details, and we would expect the Trump administration to place more priority on provisions designed to benefit US manufacturing and other Trump constituencies. But, like most trade agreements, we expect the broad emphasis to remain on free trade.”