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President Trump’s protectionist id finally slipped its leash Thursday, spreading panic from Wall Street to C-suites and beyond.
His announcement shortly after noon that he intends to slap stiff and sweeping tariffs on imports of steel and aluminum immediately sent stocks sharply lower. The Dow Jones industrial average dropped by more than 500 points, as if in a we-told-you-so to Trump from National Economic Council Director Gary Cohn and Treasury Secretary Steven Mnuchin. The two Goldman Sachs veterans have marshaled the president’s fixation on the stock market to push back against precipitous, punitive trade measures that would spook investors.
That argument worked until it didn’t. After a 24-hour stretch marked by turbulence unusual even by this White House’s standards, Trump shocked his own aides and everyone else by plunging unilaterally toward a decision that could set off a global trade war. But what happens next is far from clear. The president postponed an official decision on the matter until next week, leaving more questions than answers about what form it will ultimately take. He has a wide berth to craft the shape, scope and timing of tariffs that he pegged Thursday at 10 percent for aluminum and 25 percent for steel -- he could exempt any industries or countries he chooses.
That uncertainty has jumpy investors, among others, freshly attuned to the Trumpian tumult. The bear case for stocks, via Brian Battle, director of trading for Performance Trust Capital Partners in Chicago: “The sell-off will continue until this is revealed as a one-off or a shot across the bow… The bigger question is what will the response be from the rest of the world? If it becomes tariff-for-tariff, global GDP will collapse, and stock markets globally will be in peril.”
The bull case, via Stephen Massocca, managing director of Wedbush Securities: “I believe the biggest impact was today. Everybody was on pins and needles because of what happened in February, so it’s not a big surprise that the market moved down on this — it was set up for it.”
The investor response Thursday anticipated the tariffs' lopsided economic effect, boosting domestic steel and aluminum makers while punishing a much wider array of businesses. “All 11 major sectors of the S&P 500 fell, led by declines in shares of industrial and financial firms. Manufacturers that use steel and aluminum to produce goods were among the hardest hit stocks,” the Wall Street Journal’s Michael Wursthorn writes. “Industrial heavyweight and Dow component Boeing fell $12.52, or 3.5%, to $349.69, erasing roughly 86 points from the blue-chip index, while car maker General Motors shed 1.56, or 4%, to 37.79. Shares of several U.S. steel and aluminum companies, meanwhile, rose after the tariffs were unveiled.”
Seabreeze Partners Management president Doug Kass framed it another way, assessing the net values gained and lost by the market gyrations the tariffs announcement touched off:
16 US steel stocks market cap up $1B as a result of tariff announcement today. Rest of S&P 500 down $400B. Making Americans Poor Again. (H/T Smails) @tomkeene— Douglas Kass (@DougKass) March 1, 2018
On Friday morning, Trump explicitly invoked the specter of a trade war and called it a good thing:
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!— Donald J. Trump (@realDonaldTrump) March 2, 2018
Investors noticed, per CNBC's Steve Liesman:
Corporate leaders from industries that stand to get pinched by higher metal prices or choked-off trade were quick to register their alarm. From the FT’s Ed Crooks, Patti Waldmeir, and Shawn Donnan: “The heads of the National Tooling and Machining Association and the Precision Metalforming Association were among many steel users that warned of the damage that could be done by the import duties … They added that 6.5m people were employed in the US in businesses that use steel and aluminium, compared to just 80,000 working in the steel industry … Thom Dammrich, President of the National Marine Manufacturers Association, said the proposed aluminium tariffs could end up ‘destroying our members’ ability to build boats in the US’.”
Here was Miller Coors:
We buy as much domestic can sheet aluminum as is available, however, there simply isn’t enough supply to satisfy the demands of American beverage makers like us. American workers and American consumers will suffer as a result of— MillerCoors (@MillerCoors) March 1, 2018
this misguided tariff. (3/3)
Some automakers and parts suppliers piled on, too. “The Motor Equipment Manufacturers Association, the chief automotive components supplier trade group, said the new tariffs would endanger jobs and raise costs,” The Wall Street Journal’s Andrew Tangel writes. “A lobby representing foreign auto and parts makers in the U.S., the Association of Global Automakers, also criticized the move and linked it to a broader White House agenda of “risky renegotiations” for Nafta and other trade deals. A core member of that association, Toyota Motor Corp., issued an unusually blunt statement condemning the White House move. ‘The Administration’s decision to impose substantial steel and aluminum tariffs will adversely impact automakers, the automotive supplier community and consumers,’ the Japanese auto maker said.”
Suffice it to say, Trump’s decision on the matter will carry world-spanning economic consequences, and the matter deserved the attention it received Thursday. As significant looking ahead, though, is the dynamic within the the White House that produced it. It’s not too great a leap to say the administration appears to be unraveling. From my colleagues Damian Paletta and Josh Dawsey:
“Trump often likes to sow misdirection, running the White House like a never-ending reality show where only he knows the plot. But even by his standards, the day-long period that ended Thursday left some senior aides and Republican lawmakers wondering whether the White House had finally come unmoored, detached from any type of methodology that past presidents have relied on to run the country and lead the largest economy in the world…
The trade decision signaled the marginalization of White House National Economic Council Director Gary Cohn, who had argued against tariffs for months but was outmaneuvered by Commerce Secretary Wilbur Ross and trade adviser Peter Navarro.
It also showed the growing absenteeism of White House Chief of Staff John F. Kelly, who was at a public event Thursday morning talking about homeland security when the White House was locked in frenetic infighting over what to do.”
The New York Times reports that Cohn, a passionate free trader, even warned Kelly he might resign "if the president went ahead with the plan, according to people briefed on the discussion. Mr. Cohn, a former Goldman Sachs president, had lobbied fiercely against the measures."
He's not the only one headed for the exits, or thinking about it anyway. Hope Hicks, announced her resignation this week; senior adviser and first-son-in-law Jared Kushner hangs in limbo now that he’s lost his top security clearance; H.R. McMaster, the national security adviser, could be on his way out as early as next month, per a Thursday report by NBC News.
From Inside Trade's Jenny Leonard:
Sources briefed on the internal deliberations told me there was an “all-out war” about the plan between Navarro and Cohn, who tried to use the postponement as a way to scale back the relief from a global to a more targeted approach. https://t.co/hMeLSv10mr— Jenny Leonard (@jendeben) March 1, 2018
A Trump without restraints is more likely to push the limits of his protectionist instincts — meaning he could apply the same maximalist approach to ongoing negotiations over NAFTA and a brewing confrontation with China over intellectual property and forced technology transfers.
So while Thursday’s tariff threat could shrink over the coming days, it could also prove the opening shot in a much wider war.
From a former Trump domestic policy adviser:
This is not how good policy is made. https://t.co/6R88YBITyk— Paul Winfree (@paulwinfree) March 1, 2018
NBC's Benjy Sarlin:
“Listen you motherfuckers, we’re going to tax you 25 percent!”— Benjy Sarlin (@BenjySarlin) March 1, 2018
-Donald Trump, 2011 political speech on China
(It's true. Here's the video:)
From Alliance for American Manufacturing president Scott Paul:
China fired the first shots in this "trade war" more than a decade ago when Beijing added more steel production capacity than it could possibly use. The flood of imports devastated our steel industry and distorted the global market. No one did a thing. Until now.— Scott Paul (@ScottPaulAAM) March 1, 2018
CORRECTION: An earlier version of this story attributed reporting on Cohn's potential resignation to The Post; it appeared in a New York Times story.
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— Powell: No evidence of overheating. Reuters's Howard Schneider: Federal Reserve Chairman Jerome Powell said on Thursday the U.S. economy does not appear to be running hot, even as the influential head of the New York Fed suggested a faster pace of interest rate increases may still be in the offing for 2018. 'There is no evidence the economy is overheating,' Powell told the Senate Banking Committee in his second appearance in Congress this week, saying he expects the Fed to stick with a“gradual” pace of monetary policy tightening. But in remarks at an event in Sao Paulo, Brazil, New York Fed President William Dudley said 'gradual' could still apply to a scenario in which borrowing costs were raised four times this year, instead of the three moves Fed policymakers projected when they issued their last set of economic projections in December."
Bloomberg's Brian Chappatta:
What a difference two days makes.— Brian Chappatta (@BChappatta) March 1, 2018
*POWELL SAYS HIS CONFIDENCE ON INFLATION GETTING STRONGER
*POWELL: NO STRONG EVIDENCE OF DECISIVE MOVE UP IN WAGES, MORE LABOR MARKET GAINS CAN OCCUR WITHOUT CAUSING INFLATION
Criticizes protectionism. Bloomberg's Shelly Hagan: "Powell and one of his top lieutenants praised the benefits of a global economy without trade restrictions on a day when President Donald Trump announced plans to slap tariffs on imported steel and aluminum. Responding to questions Thursday from the Senate Banking Committee, Powell said a system where goods and services flow freely is a net positive for many countries, though the benefits aren’t spread equally. New York Fed President William Dudley was even more explicit in his criticism of trade barriers, saying in a speech in Brazil that 'protectionism is not the answer.' ... Powell, without commenting directly on any specific country’s policy, said the 'best approach is to deal directly with the people who are directly affected, rather than falling back on tariffs.'"
— Tailwinds strengthen. Bloomberg's Sho Chandra and Katia Dmetrieva: "There’s more evidence now that U.S. economic tailwinds highlighted this week by Federal Reserve Chairman Jerome Powell are gathering strength. Reports out Thursday showed recent tax cuts buoyed Americans’ spending power in January, unemployment claims fell last week to an almost five-decade low and factories expanded in February at the fastest rate since 2004. In addition, a key price gauge watched by the Fed rose in January by the most in a year...
Real disposable income, or after-tax earnings adjusted for inflation, grew in January by the most since 2015 amid lower taxes and more bonuses related to the law, the Commerce Department reported. The data, covering the first month since the tax law was signed in December, reflected a $30 billion increase in one-time bonuses and a $115.5 billion annualized drop in personal taxes. The job market remains a major support for consumers. Labor Department figures showed filings for unemployment benefits fell to 210,000 last week, the fewest since 1969."
Plus these manufacturing gains, per AP: "American manufacturers said they expanded in February at the fastest pace in nearly 14 years — gains driven in part by a jump in hiring."
— But Trump tariffs could add a headwind. Bloomberg: "Economists said the economic fallout depends on the extent of retaliation. 'It’s a really bad idea -- how bad depends on what the the rest of the world does in response,' said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania."
And there were immediate signs of an international backlash. From The Post's David Lynch and Caitlin Dewey: "Trump’s move... is expected to trigger legal challenges by China, the European Union and Brazil at the World Trade Organization... Canada, one of the United States’ closest allies, blasted the step as “absolutely unacceptable” and vowed to respond when the levies take effect. Jean-Claude Juncker, president of the European Commission, dismissed Trump’s national security justification and said the tariffs were 'a blatant intervention to protect U.S. domestic industry.'"
Rupert hates it, too. From the WSJ's editorial board: "Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum. This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms... His tariffs will benefit a handful of companies, at least for a while, but they will harm many more."
— Clarida for Fed No. 2. WSJ's Nick Timiraos and Harriet Torry: "Trump is likely to nominate Columbia University economist Richard Clarida to become vice chairman of the Federal Reserve Board, according to people familiar with the matter. Mr. Clarida is a Republican economist whom colleagues describe as more of a pragmatist than an ideologue. Such a temperament fits the mold of Fed Chairman Jerome Powell, a lawyer and former investment executive who began a four-year term as the central bank’s leader in February... Mr. Clarida is managing director and global strategic adviser at Pacific Investment Management Co. and since 1988 has been an economics professor at Columbia, including four years as department chair. He served at the Treasury Department as assistant secretary for economic policy during the George W. Bush administration from 2002 to 2003, a position that required Senate confirmation."
— GOP senators recoil at tariff news. The Post's Erica Werner: "Trump’s fellow Republicans were aghast Thursday in the wake of his decision to levy harsh tariffs against steel and aluminum imports... 'So they’ve announced it?' asked Sen. Pat Roberts (R-Kan.), who chairs the Agriculture Committee. After being informed of the scope of the new tariffs — 25 percent for foreign-made steel and 10 percent for aluminum — Roberts shook his head and pronounced the move 'terribly counterproductive.'... Roberts and others fear that the steel and aluminum tariffs, which are much farther-reaching than the earlier action, could prompt similar retaliation. Many states also import as much steel or more than they export, and senators fear the result of the tariffs could actually be rising steel prices. 'What bothers me is if his proposal is so broad and counterproductive that it really harms other manufacturing interests,' said Sen. Ron Johnson (R-Wis.)."
From The Post's Seung Min Kim:
.@senorrinhatch, when told about Trump’s surprise tariff announcement:— Seung Min Kim (@seungminkim) March 1, 2018
“Oh yeah? He did that?”
From Rep. Mark Meadows (R-N.C.), co-head of the Freedom Caucus and typical Trump ally:
The Commerce Department's recommendation to impose tariffs ignores history--and it ignores the reality that U.S. manufacturing will ultimately be the loser with these protectionist policies— Mark Meadows (@RepMarkMeadows) March 1, 2018
PBS NewsHour's Lisa Desjardins:
WOW. Hatch, one of president's most reliable Senate allies just put out this statement:— Lisa Desjardins (@LisaDNews) March 1, 2018
"“Tariffs on steel and aluminum are a tax hike the American people don’t need and can’t afford...”
— Majority backs Pelosi on "crumbs." The Post's Ed O'Keefe: "House Minority Leader Nancy Pelosi (D-Calif.) has earned the ire of Republicans for suggesting that major corporations are giving workers “crumbs” while top executives reap bonuses after passage of the GOP’s tax revision plan. But a new poll from a group supportive of President Trump finds nearly half of Americans agree with Pelosi’s comments despite weeks of relentless criticism from GOP leaders. The poll was conducted by America First Policies, a pro-Trump nonprofit group established shortly after the president’s inauguration last year."
Buybacks soar. WSJ's Akane Otani, Richard Rubin and Theo Francis: "Share buybacks announced by large U.S. companies have exceeded $200 billion in the past three months, more than double the prior year, according to a Wall Street Journal analysis of data for S&P 500 companies. Among the biggest: Cisco Systems Inc. at $25 billion, Wells Fargo & Co. at about $21 billion, PepsiCo Inc. at $15 billion, AbbVie Inc. and Amgen Inc. at $10 billion apiece, and Alphabet Inc. at $8.6 billion."
— Warren wants #MeToo on Wall Street. Bloomberg's Ben Bain: "Warren, the finance industry’s leading critic in Congress, asked the Securities and Exchange Commission what it’s done to ensure banks have established policies and disciplinary systems to prevent sexual harassment. The Massachusetts Democrat and two other senators also asked the Financial Industry Regulatory Authority, which oversees broker-dealers, for data on the prevalence of abuse in the industry."
— Mnuchin outtakes. The Post's Catherine Rampell: "On Monday, Treasury Secretary Steven Mnuchin participated in a discussion at the University of California at Los Angeles with “Marketplace” host Kai Ryssdal. The event was open to the public, and some of the attendees heckled and hissed at him. Demonstrators outside dressed up as Louis XVI and Marie Antoinette, serving cake... Mnuchin subsequently asked the university not to post its official video or audio... Because it was open to the public, however, some of the other people present also captured video. One sent me a short clip from the event, showing a sixth-grader asking the secretary a tough question about taxes. Here it is:"
— New trouble for Wells Fargo. WSJ's Emily Glazer: "Wells Fargo's problems are expanding to its wealth-management business. The Justice Department in late 2017 told the bank to conduct an independent investigation of its wealth-management business after whistleblowers from the bank alleged sales problems to the agency... Wells Fargo on Thursday disclosed the board’s investigation in a securities filing, saying it was 'in response to inquiries from federal government agencies.' The bank said the board’s review is assessing 'whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the company’s investment and fiduciary services business.'"
Four board members are leaving, "including its three longest-serving directors... amid mounting pressure for new oversight as an 18-month scandal continues to expand," Bloomberg's Laura Keller and Shahien Nasiripour write. "Federico F. Pena, Lloyd H. Dean, Enrique Hernandez Jr. and John S. Chen will leave at the company’s annual shareholder meeting on April 24, the company said Thursday in a statement. Critics including U.S. Senator Elizabeth Warren have demanded the board push out members who presided over the bank when employees created millions of fake accounts."
— New trouble for Equifax. American Banker: "Equifax, the credit-reporting firm that suffered a massive data breach last year, said it will notify an additional 2.4 million U.S. consumers that they were affected by the hack. The customers were among the 145.5 million people whose identities were stolen last year, but Equifax was unable to confirm who they were at the time because only partial driver's license information was taken, the Atlanta-based credit-reporting company said Thursday in a statement. The consumers will be notified and the firm will offer them free credit-monitoring and identity-protection services."
(It feels very last summer-y all of a sudden.)
— Treasury ends hedge fund runaround. WSJ's Richard Rubin: "The Treasury Department moved Thursday to limit a gap that could have let some investment-fund managers avoid higher taxes on their carried-interest income. The formal move, previously announced by Treasury Secretary Steven Mnuchin, will be followed by regulations that will be retroactive to Jan. 1, the government said. 'Treasury and the IRS stand ready to implement the Tax Cuts and Jobs Act as Congress intended and provide the appropriate taxpayer guidance on how the law will be implemented,' Mr. Mnuchin said."
- The Heritage Foundation holds an event on "What the Bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act Means for Financial Regulatory Reform" on March 5.
From The New Yorker:
Steel tariffs explained using Reddi-wip whipped cream:
Here's how Trump plays good cop and bad cop:
Here's what Hope Hicks's departure says about the White House: