Trump: Tough talk on trade is for real - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, notes that on the Trump front, the message from his strategist Bannon – that tough talk on trade is for real - has been supported by the President-Elect.

Key Quotes

“Confirming he will issue an executive order on his first day in office to withdraw from the TPP, while promising that his presidential agenda “will be based on a simple core principle, putting America first, whether it's producing steel, building cars, or curing disease, I want the next generation of production and innovation to happen right here in our great homeland, America.” Instead, he proposes to negotiate “fair” bilateral trade deals that will bring back jobs and production to the US, which might prove ‘challenging’ to low-cost exporting countries.” 

“As many commentators have noted, this appears to officially mark the US stepping back from a global economic leadership role, following the path of the UK (among others) before them. That’s perhaps true in a multilateral sense, and especially in the Asia-Pacific region; however, we could still see Trumpism being copied globally, especially if it actually gets economic results. Even so, that would still look far more likely to happen in the West than the East. Indeed, where the sun rises, the chatter is now of a shift towards a China-led Regional Comprehensive Economic Partnership (RCEP), which excludes the US and Europe, but includes China, Japan, Korea, India, the 10 ASEAN members, Australia and New Zealand. Yet, as we noted yesterday, this falls far short of what the US- and USDcentric system has offered Asia until now, leading to major market uncertainty.”

“Nonetheless, one thing does look certain: a shift towards “putting America first” will over time lead to a rising risk of USD liquidity squeezes in an Asia-Pacific region that is still extremely reliant on USD borrowing and USD-denominated trade. Meanwhile, Australia and New Zealand appear to be either in the best of all possible worlds -- high-income OECD economies that don’t threaten the US via trade, yet also included in the Asia-Pacific RCEP -- or stuck between a rock and a hard place -- linked to Asia by trade, but to the West by history and culture.”