When President Trump met with six Republican senators last week to talk about trade, the lawmakers issued a stark warning: Implementing an unrestrained "America first" agenda — such as withdrawing from the North American Free Trade Agreement — would endanger stock prices that have soared since his election.
Just steps from the Oval Office, the president listened as Sens. Cory Gardner (Colo.) and Pat Roberts (Kan.) depicted the potential fallout if Trump follows through on his threats to quit NAFTA.
The talks, which will resume later this month in Montreal, have been stalled over U.S. demands for significant concessions from Mexico and Canada. The impasse has prompted treaty proponents to search with growing urgency for any argument that might sway the president, leading to the new emphasis on investments.
On Wednesday, pro-NAFTA forces looked prescient when an errant wire service report that Canada thought a U.S. pullout was imminent erased more than $2 billion from General Motors' value in less than 90 minutes.
The Roosevelt Room meeting on Jan. 4 included trade advocate Gary Cohn, who left his Wall Street job at Goldman Sachs to head the National Economic Council, and U.S. Trade Representative Robert E. Lighthizer, who shares Trump's instinctive protectionism.
The two aides personify the tension between the record-setting bull market, which the president considers validation of his economic stewardship, and the tough trade measures that he has repeatedly promised his blue-collar supporters.
"The stock market is hitting one all-time record after another. . . . Everybody happy with your 401(k)? Because if you're not, there's something very wrong," the president told a Farm Belt audience in Nashville on Monday.
After the meeting, the White House said the president talked to the senators about seeking "more equitable trade deals with our partners, increasing exports and ensuring American industries are treated fairly around the globe." A spokesperson from the trade representative's office declined to comment on the discussion, which was described by a former trade official who works for a pro-NAFTA farm group.
But the president's willingness to court a breakup of the 1994 treaty risks "serious market repercussions," said a business executive who is familiar with the internal administration debate and spoke on the condition of anonymity to discuss confidential talks.
A second executive, who also spoke on the condition of anonymity to discuss confidential deliberations, said treaty supporters are arguing that pulling out of NAFTA would neutralize the economic gains that the administration anticipates from the recent $1.5 trillion tax cut.
Last week's White House meeting was at least the second time the president had heard from NAFTA supporters about the financial fallout of withdrawing from the treaty. In early December, during a similar session with another group of senators, Sen. Joni Ernst (R-Iowa) showed Trump a chart demonstrating that his April threat to exit NAFTA caused pork futures to sink, according to a third executive briefed on the closed-door meeting.
NAFTA supporters hope that the warnings will resonate with a president who frequently boasts about lofty stock values. Earlier this week, Trump touted the market's performance on four out of five days, including three times on Jan. 4. Since the 2016 election, the Standard & Poor's 500 index has increased 29 percent.
Trump's enthusiasm for the market is matched by his decades-long demand that the United States reorient its trade policy to benefit American workers. Within days of taking office, the president withdrew the country from the Trans-Pacific Partnership, a 12-nation trade deal that was the centerpiece of President Barack Obama's Asia policy.
Since then, Trump's trade actions have paled in comparison to his tough campaign talk. On Tuesday, the White House announced that he will travel to Davos, Switzerland, this month for the annual World Economic Forum, an elite gathering regarded as the cradle of globalization.
But starting later this month, he is scheduled to decide several pending trade disputes that could reshape U.S. commercial ties with its largest trading partners. On Jan. 26, three days after the start of NAFTA renegotiations in Montreal, the president will face a deadline to announce whatever action he plans to take in a trade dispute involving Chinese-made solar panels.
"You're definitely going to get something on the trade front," said Chris Krueger, managing director of Cowen Washington Research Group, who advises portfolio managers on government policies. "When I think about policy risk from D.C., trade is at the very top of the agenda."
The president also will confront decisions in cases involving imported washing machines, China's alleged theft of American intellectual property, and limiting imported steel and aluminum in the name of national security.
Urging him forward is Lighthizer, now the most assertive advocate of the "America first" approach, filling a void left by former White House strategist Stephen K. Bannon. On Tuesday, Lighthizer unapologetically told a meeting of the White House Advisory Committee on Trade Policy and Negotiations: "I am a nationalist."
White House officials say that the president is presiding over a deliberative process that balances a tougher trade stance's likely gains with its potential costs. Multiple White House agencies, including the Office of the U.S. Trade Representative, the National Economic Council and the National Security Council, are involved in creating the administration's trade stance.
Information is often relayed to Trump, who has been critical of U.S. trade policy since the 1980s, in hopes of keeping him briefed on the potential fallout from any decisions. White House officials said that they are mindful of complaints raised by farmers and industry groups, and that they are conducting their own economic assessments.
"Any decision we take, we are thinking about how that affects the economy," said a White House official, who spoke on the condition of anonymity to discuss the administration's internal process. "The president has really put the American economy in a really strong position and we don't want to do anything to jeopardize that. But we are going to take the actions we think are best for the economy."
Some pending decisions would be more consequential for financial markets than others. The International Trade Commission, an expert body that administers U.S. trade law, already has ruled that U.S. companies have been damaged by rising imports of solar panels and washing machines. So most analysts expect the president to authorize trade restraints in those cases, a move that would affect a limited number of companies.
But a NAFTA walkout would be a diplomatic bombshell with the potential to cause much greater market damage.
Although investors are braced for the president's trade announcements, most expect the United States to reach a deal with Mexico and Canada on a modernized accord, which would include new language on trade in digital services and perhaps changes in provisions governing the energy sector.
Industry executives have been cheered by the company Trump has been keeping. When the president traveled to Nashville this week, he took along Agriculture Secretary Sonny Perdue, a NAFTA supporter who assured worried farmers that the president would deliver them a new deal — not just blow up the current one.
Wednesday's rumor about an impending U.S. withdrawal sent stocks, bonds and currencies lower in all three NAFTA countries, a sign that investor confidence remains fragile,said several market professionals.
"Whenever President Trump opens his mouth about tariffs, everybody gets nervous again," said Brian Belski, chief investment strategist at Bank of Montreal Capital Markets Corp., who expects a deal.
Despite the warnings that Trump is receiving, there is no iron link between global trade and the stock market. The S&P 500 index, the broadest measure of the U.S. stock market, has risen about 50 percent since the beginning of 2014 despite a decline in global trade volumes over that period, according to World Trade Organization statistics.
In continuing to climb through 2017, stocks also shrugged off a surge of Commerce Department trade enforcement actions. The Trump administration in 2017 opened 79 anti-dumping and countervailing-duty investigations — a 52 percent increase from the previous year.
But industry representatives who favor the status quo argue that a NAFTA collapse would so disrupt North American supply chains, especially in the auto industry, that it would trigger a market sell-off. Farmers are worried about losing export sales to Mexico if NAFTA ends. The beef industry has warned that Mexico would place 25 percent tariffs on U.S. exports.
The stock market link is less visible in the debate about potential trade actions against China, which also have broader support. U.S. companies have grown increasingly frustrated with China's failure to prevent counterfeiting of the firms' products and its requirement that they surrender their technology secrets in return for access to the Chinese market.
"A NAFTA withdrawal would be enormously disruptive of agriculture and a large number of supply chains. Plus, there's no good reason to do it — it's in the 'it ain't broke, so don't fix it' category," said William Reinsch, a senior adviser at the Center for Strategic and International Studies. "China, on the other hand, is actually doing the stuff Trump alleges, and I think there will be quiet support for it from business."
The White House delayed most key trade policy decisions last year to concentrate on completing the $1.5 trillion tax cut bill, but officials are now returning to their trade agenda. The move is driven by an awareness that the president, saddled with low public approval ratings, needs to deliver something to the working-class voters who cheered his trade message.
Trump was elected in part because of support in Rust Belt states that have lost millions of manufacturing jobs in recent decades.
Even as economists highlight the role of automation in reducing factory employment, many voters in those communities blame a quarter century of trade agreements for encouraging the movement of U.S. jobs to countries such as Mexico.
"With the liberalization of trade policy, you've really seen the people who put President Trump into office adversely affected," said Andy Puzder, former chief executive of CKE Restaurants and Trump's first nominee to be labor secretary.
Trump is approaching the trade decisions the way he has long handled business decisions, he added. "There are risks, but if you are a business person who has had experience in this area, you know how far to push," Puzder said.