You may think that US President Donald Trump’s bull in a china shop approach to international trade does nothing but damage hard-fought relations and agreements that are ultimately to the economic benefit of all parties.
But you’d be wrong, says Phil Orlando, chief equity market strategist at Federated Investors. In fact, Trump’s bluster is likely to be good for the economy —the US one, at least.
Tariffs imposed by the Trump administration on goods arriving in the US are pushing many to conclude that if not a trade war, the world’s economies are at least fighting a trade battle, one in which there will be no winners. Last week, a Scotiabank Economics report stated that a failure to come to an agreement on a new NAFTA and the tit-for-tat imposition of tariffs by the US, Canada and Mexico could very well “tip all three countries into recessions.”
“No other major economy I’d say is militating for higher tariffs,” says Brett House, Vice President and Deputy Chief Economist at Scotiabank Economics. “It’s very much about the hub-and-spoke relationships between the United States at the centre and its trading relationships with the rest of the world.”
Taking a more optimistic approach is Orlando, who says that even if Trump’s tactics are crude, as long as they end up moving the needle on the US’s trade deficit with countries like China, it’ll be worth it.
“We don’t think we’re in a trade war,” Orlando told BNN Bloomberg. “What we think is that we’re in is a negotiating ploy. This is the way [President Trump] conducts himself. It’s very different than the way other foreign leaders may conduct themselves.”
“We think that Trump is waving his sabre, banging the podium, trying to get the attention of China, the NAFTA countries, Germany and Japan. He’s got their attention, and now the idea is to negotiate marginally better trade terms which will have a significant and direct impact on US GDP,” he says.
The rift between US and China came to a head last month as trade talks between the two economic powers hinged on whether China would agree to over time cut in half its reported $375 billion trade surplus with the US (all figures in US dollars).
Orlando says that even making a minor dent in the US’s trade debt would be a big win.
“The US has significant interest in trying to level that playing field and trying to counter the stealing of intellectual property that everyone seems to acknowledge that the Chinese have been undergoing,” he says. “If China is willing to chop $150-200 billion off of that deficit and merely operate with a $200 billion surplus, well, that change would add a percentage point to US GDP growth in an environment where we’re operating a $20 trillion economy.”
“We’re not talking about eliminating the deficit, we’re just talking about marginally making some improvement [and then] we can take the economy from something like three per cent growth to closer to four per cent growth and given the size of the US economy, that’s significant,” Orlando says.
“That ultimately will boost economic growth and corporate earnings growth and drive share prices higher,” he says.