a quick word...

Is Trump leading us into a slump? 

While President Trump’s increasingly irrational behaviour and unfortunate comments, both on- and off-camera may cause political embarrassment and have his speech writers frantically writing retractions for him to utter somewhat unconvincingly, his attempts to strongarm changes to the NAFTA Accord and other global trade arrangements are of rather greater concern to the global auto industry.

In a rare show of unity in what is an intensely competitive industry, seven lobbying groups issued a letter to Trump urging him to reconsider his administration's proposal to impose tariffs as high as 25% on imported cars. What makes this move particularly noteworthy is that it takes a holistic view of the industry globally; the groups represent foreign OEMs and tier suppliers but also US domestic carmakers and dealers. "We have come together as a united US auto industry - domestic and international automobile manufacturers, suppliers, dealers and auto care businesses - to urge your administration to achieve fair trade through policies that won't jeopardise American jobs, our economy or US technological leadership," the letter said.

Added to this outcry is the warning just made by the The International Monetary Fund (IMF) that a significant economic downturn could be among the effects of a trade war.

In the latest update to the IMF World Economic Outlook, the organisation said that the current trade war bluster threatened to trigger a decline in global output.

“Our modelling suggests that if current trade policy threats are realised and business confidence falls as a result, global output would be about 0.5% below current projections by 2020,” Research Department Director Maury Obstfeld told journalists in Washington, DC in early July.
Obstfeld was keen to stress that such a significant economic downturn was a worst-case scenario, and highlighted how difficult it was to accurately predict the impacts of complex political manoeuvring.

Whether Trump’s seemingly aimless potshots at the auto industry could be described as manoeuvring is debatable; he often seems to use his office and his undoubtedly expert and experienced staff much as a drunk uses a lamp post - more for support than illumination.
Of course, the really smart response to the tensions in global trade spurred by the economic power of China would be to negotiate deals to open up China and Europe to be more favourable to imports and to reciprocate with more reasonable tariffs on imports to the US.

It is possible that NAFTA members will reach a tentative agreement in August to revamp the pact and Trump has also recently said that the US is making solid progress in talks with Mexico, but he also said that his government try to negotiate a bilateral deal with Mexico before negotiating separately with Canada. This is just the sort of divide and rule approach that can, and probably will, alienate members of the accord, and probably would delay any settlement for some time. Mexico’s incoming president Andres Manuel Lopez Obrador has said he wants to keep the trilateral structure of Nafta in place and he is not alone; Canada and the US Congress have publicly stated that they favour a trilateral pact.

The Republican ranks of Congress are urging Trump to reach a conclusion to negotiations quickly in order to avoid a trade war which would impact heavily on their constituents, many of whom are the blue collar voters that put Trump in the White House in the first place. 

Protectionist policies often impact badly on the global economy, lead to trade wars and ultimately can trigger a global recession and even Trump’s bluster and misplaced confidence will not get us all out of that.

Simon Duval Smith

Editor: Simon Duval Smith
Chief Executive: Peter Wooding
Advertising: Paul Singh
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All rights reserved. No part of this publication may be reproduced or stored in a retrieval system without the written permission of the publishers. Whilst every care has been taken in compiling this publication, the publisher cannot accept responsibility for any inaccuracies or changes since going to press, or for consequential loss arising for such changes or inaccuracies, or for any other loss direct or consequential arising in connection with the information in this publication. The views expressed by the contributors are not necessarily also those of the publisher.
Additional images: freepik.com   |   pexel.com       E&EO

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