What Will Trump Pick: Plunging Stocks Or Trade War? We Now Know The Answer

One of the long-running debates on Wall Street has been when faced with two choices, a plunging stock market or a full-blown, (perhaps) popularity boosting trade war with China, which one would Trump choose. After all, for much of the first year of his administration, Trump took delight in pointing out the daily surge in the S&P, which he was all too quick to take credit for, which prompted many to ask what happens when stocks plunge, and will Trump wash his hands from the red tape.

This morning we finally got the answer, thanks to CNBC's Eamon Javers who moments ago tweeted that a "White House official said the the WH recognizes that Trump’s actions are hitting the stock market, but this is “a longer term thing,” and the president has to follow through on a key campaign promise. The White House feels that China simply has to be held to account."

Which means that Marko Kolanovic was wrong once again. Recall that in mid-March the JPM quant said that there is no way Trump would launch a "significant trade war" as that would risk "destabilizing markets" and Trump would "open a path" to his own impeachment:

A significant trade war started by this administration would destabilize global equity markets. Should this happen ahead of the November election, it would impair the administration’s ‘market scorecard’ and likely lead to an election loss. Lost elections open a path to impeachment, and other complications. The game is also non-zero sum, as one can both use tough rhetoric and at the same time do little disruptive action (e.g., players as we defined them can ‘have their cake and eat it’). Setting up a diagram (similar to the well-known ‘prisoners’ dilemma’) points clearly that there will be strong rhetoric, but weak or no action that would destabilize equities.

Clearly, that's not what Trump had in mind, and now it's time for algos - and reputable Wall Street analysts - to start pricing to what he did.

And speaking of China's retaliation, Javers tweets that he "asked a White House official last night if the US was prepared for further Chinese retaliation for American trade action and if we should then expect further reaction by the US. The official said “all of it is under discussion.”

Meanwhile, the real question is whether Trump and Navarro now unveil a new, third round of tariffs against China. If and when they do, all bets will be off.

* * *

Javers also touched on something else: what happens to the biggest risk factor of, well, yesterday, namely that other ongoing feud between Trump and Bezos. Here is Javers: "A White House official tells me it is “almost certain” there are no specific policy actions coming from the White House against Amazon. But the president is “not a fan of Jeff Bezos.”"

Then again, it is Trump, and he may unexpectedly tweet about Bezos and/or Amazon at any moment, unleashing even more "risk off" especially in the aftermath of his dinner last night with the co-CEO of Oracle who is now almost assured of winning the Pentagon contract that was meant to go to Amazon.

Comments

GUS100CORRINA buzzsaw99 Wed, 04/04/2018 - 07:48 Permalink

What Will Trump Pick: Plunging Stocks Or Trade War? We Now Know The Answer

My response: TRADE WAR??? Really?? How about we finally have a POTUS who gives a SHIT about current state of the nation and knows DAMN well that these TRADE DEFICIT levels are the DEATH of AMERICA!!!!

For the last 30 years going all the way back to Regan, America's accumulated trade deficits total over 20 Trillion dollars. Folks, this is NOT SUSTAINABLE any longer. We are out of road for can kicking.

In reply to by buzzsaw99

Dickweed Wang HockeyFool Wed, 04/04/2018 - 08:14 Permalink

I hope the market tanks. 

 

There's a narrative going around says that is essentially Trump's plan.  He wants to bring down the existing corrupt system and in fact he spoke about the problems with the existing financial system several times during his run for president.  It's high time someone with power has the balls to actually do it.

In reply to by HockeyFool

zob2020 Uranium Mountain Wed, 04/04/2018 - 09:24 Permalink

Learn how to cook even basic stuff and stop buying highly refined "food". It's amazing how cheap you can live by not buying beverages or anything refined very far beyond say non-sugared yogurts and such. Eggs are crazy cheap as a rule, and sustain at 2-3 a day a person as a omelet, or the occasional spaghetti bolognese or even a potato-meat-cream-butter-garlic stew (lasts a week at $8).
And then a bunch of microwave food eaters complain how food is expensive and they spend 300+ on various pizzas etc crap full of soy etc gmo crap.

In reply to by Uranium Mountain

bshirley1968 GUS100CORRINA Wed, 04/04/2018 - 08:00 Permalink

"Trade Deficit levels are the death of America"?

That's a bit of an over simplification, don't ya think?

It cannot be "fixed" without major pain.....pain in the form of depression, massive death, and inevitable war. It will end the American empire and the way of life as we know it. Prices will rise way faster than anyone's "income" level, massive defaults, major economic disruption, etc.

Don't get me wrong, I am all for it, but people had better get their shit in order.

In reply to by GUS100CORRINA

bshirley1968 BlindMonkey Wed, 04/04/2018 - 08:25 Permalink

Not at all. But I don't think this is the road to take.....yet.

Trump should use his power to "encourage" corporate America to move their operations back to US. Corporations were and are the "bad guys" in this scenario. They left us high and dry for the slave labor markets.

I would "incentivize" corporations to bring their manufacturing back to US. China just took what they were given and are now the easy target of Nationalistic anger, when in fact this was done to us by our own people.

It wouldn't be that hard to force corporations to bring production back to the states, lift the incomes of middle class Americans, and begin insulating and rebuilding our economy......to be better prepared for a trade war.

Trump has "leaped before looking" in my opinion. This is going to hurt the people and not the real culprits.

A real trade war could end up killing millions of Americans without a shot ever being fired. Our JIT food supply chain is very fragile. Too many people dependent on too few producers. Easily disrupted, and would bring massive trouble. But we did learn Americans have a lot if stored up fat, so maybe we would be okay......fat chance.

In reply to by BlindMonkey

bshirley1968 buzzsaw99 Wed, 04/04/2018 - 08:31 Permalink

But the real question is, should that be the focus of his ballz, or are there more important hills to die on?

Our deficit problem weakens our ability to win a trade war. ....big time. He should give corporate America some tax incentives to bring business back to America so we can start exporting again. Making our products less attractive on the international market is not the solution.

In reply to by buzzsaw99

tstpilot00101 buzzsaw99 Wed, 04/04/2018 - 10:30 Permalink

The title of this article is WRONG.  You can't compare two things that do the same thing (a trade war results in lower stocks).  The title (if you want to do a proper comparison) should be...

"Lower Stocks or Bigger Trade Deficits"

My 8 year old pointed this out, why can't the author (an adult I assume) figure this shit out???   C'Mon man!!

In reply to by buzzsaw99

Navymugsy Wed, 04/04/2018 - 07:46 Permalink

I'm getting killed but what's the alternative when the Chinese rob everybody blind? When they capitulate, the market will bounce back. Down votes to follow...

Brazen Heist BlindMonkey Wed, 04/04/2018 - 08:54 Permalink

People are fucking dumb. If you think the Chinese are the root of your problems in the US of A, you deserve what's coming.

What's next....blaming the Yemenis for Saudi war crimes and blaming the Russians for ISIS? Oh wait....I've seen this level of stoopid before.

Therein lies the problem with the unipolar world order. The chief bully can never hold himself to account.

In reply to by BlindMonkey

Rothbardian in… Brazen Heist Wed, 04/04/2018 - 09:11 Permalink

It's insane isn't it?  The same idiots cheering tax increases on themselves as a way to win a "War" with China that they created themselves out of their own stupidity is like some sort of turducken of retardation layers.

 

What's worse is that all of the idiots have seemed to have herded up into red and blue camps and are dead set on destroying the other color like a paintball match in an echo chamber and ammunition of twitter posts and campaign bumper stickers.

 

I used to think that we were living a dystopian future of 1984.  But it really is more like if you combined 1984 and Idiocracy.

In reply to by Brazen Heist