Weekly Economic Report
President Trump may have opened a second front in the trade war just weeks after closing the door for six months on conflict with Europe and Japan. With a tweet, he threatened Mexico with an imminent 5% levy on all imports, and a schedule that would increase to 25% rapidly if progress were not made on immigration. Markets clearly did not like the new policy – but the impact so far is muted as many expect a softening of the position via either a Trump or Powell put. Bottom line, the markets are still fumbling with whether Trump’s threats are real or negotiating ploys – but, since he walked out on North Korea, doubled down on Iran, backed a regime change in Venezuela and hit China with the full 25% tariff, any pronouncement must be taken more seriously. The US press has both Mexico and China offering new negotiations, but domestic press in still nationalistic in both countries. We expect any resolution will take time, and that softer US equity markets are likely before any hard negotiations take place. As we have stated many times, whether you agree with Trump’s policies or not, with a strong economy and low inflation, this is the best time to fight a trade war. Investors have systematically underestimated President Trump’s resolve to get better trade terms from countries running large trade surpluses despite short term pain and suffering – just ask the farm community.