Trump Embraces Market Pain With Little Concern of Contagion
(Bloomberg) -- President Donald Trump is embracing financial-market pain to get what he wants around the world, showing again the penchant for turmoil that is his trademark in U.S. politics.
His decision Friday to double steel and aluminum tariffs on a Turkish economy already reeling from a currency crisis came just days after imposing new sanctions on Russia, creating market havoc in both countries. Most Asian markets ended down for the week amid the U.S.-China tariff war.
Rather than worrying about U.S. markets becoming infected by sell-offs elsewhere, Trump is cheering on the economic losses suffered by the targets of American tariffs and sanctions.
Turkey’s lira is sliding “rapidly downward against our very strong Dollar!” Trump said on Twitter on Friday as he ratcheted up tariffs on its metals exports.
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Just a week ago he said on the same platform that duties he imposed on China were “working far better than anyone ever anticipated,” celebrating a decline in the Chinese market while adding that the U.S. “market is stronger than ever.”
The broadsides suggest Trump is unfazed by disorder in overseas markets and hopes the routs force foreign capitals to bend to his will. Reinforcing his approach are Trump’s favorite benchmarks -- the U.S. stock market and employment figures -- which continue to boom. Despite some spillover, the Standard & Poor’s 500 Index remains close to an all-time high set earlier this year.
Turkish President Recep Tayyip Erdogan pledged that the American economic actions wouldn’t shape Turkey’s actions in a New York Times op-ed published Friday, saying his country “established time and again that it will take care of its own business if the United States refuses to listen” and that Trump’s unilateral actions would only undermine American security interests.
“Before it is too late, Washington must give up the misguided notion that our relationship
can be asymmetrical and come to terms with the fact that Turkey has alternatives,” Erdogan
wrote. “Failure to reverse this trend of unilateralism and disrespect will require us to start
looking for new friends and allies.”
Trump has ushered in the exact kind of disruption he likes to cultivate. Yet economists question whether the strategy will achieve durable results.
“He likes brinkmanship. He likes to push people to the edge of their comfort,” said Douglas Holtz-Eakin, the former chief economist for President George W. Bush’s Council of Economic Advisers who is now president of the American Action Forum. “There are big risks with this approach.”
Disturbances from Trump’s strong-arm tactics could spread between markets. Coupled with the possibility of economically driven political instability and retaliation against American businesses, Trump is engaged in a high-stakes gamble.
Turkey’s meltdown sent shock waves through other emerging markets and Europe. The euro sank as much as 1.2 percent to the weakest in more than a year after a Financial Times report that the European Central Bank raised concern about the region’s banks’ exposure to Turkey.
Turkish banks will hold an emergency meeting with regulators on Saturday with dollar shortages sweeping across Istanbul.
The threat of financial crisis hasn’t loomed as large in the formative early months of the Trump administration as his recent predecessors’. Barack Obama came into office confronting the worst economic downturn since the Great Depression after a global market collapse started by mortgage-backed securities. George W. Bush began his administration with a recession triggered by the bursting of the tech bubble. Bill Clinton was elected during a recession that included a banking crisis and real-estate downturn.
Trump, on the other hand, entered office with the U.S. economy already well into one of its longest expansions in history.
If the president or his top economic advisers are worried about financial contagion, they haven’t shown it. National Economic Council Director Larry Kudlow mocked China over retaliatory actions earlier this week, saying he viewed their response as “weak” and warning that the Chinese “better not underestimate President Trump’s determination to follow through.”
Kudlow’s comments came on the heels of a television interview with trade adviser Peter Navarro, who said he was unconcerned by the potential impact of the tariffs being imposed by the administration.
“We got two economies that add up to around $30 trillion in annual GDP,” Navarro told CNBC. “The amount of trade we’re affecting with the tariffs is a rounding error compared to that.”
Administration officials admit their confidence has been boosted by a framework agreement with the European Union intended to calm the disruption caused by the president’s tariffs. Under the handshake deal, Europe has committed to increasing U.S. energy and soybean imports in exchange for Americans backing off additional levies.
The president’s approach has also prompted national security concerns among some observers. The Pentagon said Friday that operations were continuing as normal at Incirlik air base, a key U.S. staging ground for Middle East operations, though the country has previously suspended American access during a dispute over arms trading in the 1970s.
Friday’s sanctions amounted to a “reckless escalation,” according to Brian Klaas, a fellow in comparative politics at the London School of Economics.
“Turkey is a NATO member and a U.S. airbase in Turkey is stockpiled with 50 nuclear bombs,” Klaas said. “His tweets continue to pose serious national and international security risks.”
Mohammad Javad Zarif, the Iranian foreign minister, chided Trump on Twitter for his “jubilation in inflicting economic hardship on its NATO ally Turkey.”
“U.S. has to rehabilitate its addiction to sanctions & bullying or entire world will unite -- beyond verbal condemnations -- to force it to,” Zarif tweeted. “We’ve stood with neighbors before, and will again now.”
(An earlier version of this story corrected the spelling of Brian Klaas.)
©2018 Bloomberg L.P.