US stocks turned higher and treasuries erased gains as investors speculated that US president Donald Trump’s tough tariff talk won’t translate into the most severe protectionist policies.
The S&P 500 Index reversed losses of as much as 0.6 per cent after hedge fund billionaire Ray Dalio called Mr Trump’s threat of a trade war “political show”. Ten-year treasury yields followed stocks and pared an early decline, while the greenback gave back gains against peers. West Texas crude advanced to about $62 a barrel.
“The positive story today is the lack of anything bad happening,” Kevin Caron, a senior portfolio manager at Washington Crossing Advisors, said. “The bad news would have been if [Trump] announced more tariffs, or if there was some kind of reciprocal action from another country.”
Overnight Mr Trump had increased pressure on Canada and Mexico over trade, saying in a series of tweets that the two could avoid being caught in his planned hefty tariffs on steel and aluminium imports if they ceded ground to Washington in talks on a new North American Free Trade Agreemen (Nafta) trade deal.
Mr Trump also said, after a weekend of tweets in which he threatened to hit German automakers with tariffs, that Mexico needed to do more to stem the flow of illegal drugs to the United States, something not encompassed by the talks over Nafta.
Threats of retaliation
The US president’s determination to push ahead with a 25 per cent tariff on steel imports and a 10 per cent duty on aluminium, which he announced last Thursday, has prompted threats of retaliation from the European Union, Canada, China and Brazil among others.
European Commissioner for Competition Margrethe Vestager said the EU would respond to the tariffs “to defend European industry, and the world trading system”. She called the Trump action “one-sided protectionist measures, which hurt, not just jobs, but the whole system of rules that makes our global economy work”.
Over the weekend, European Commission president Jean-Claude Juncker told German television that “Harley-Davidson motorcycles, bourbon and blue jeans – Levis” were among items on a draft list of US goods to be taxed if Mr Trump persisted with his tariff plan.
The US president’s plan has roiled world stock markets as it raises the prospect of an ever-escalating trade war that would derail global economic growth. Mr Trump has been criticised by a swath of senior lawmakers from his own Republican Party, but has won support from some Democratic legislators.
“We have large trade deficits with Mexico and Canada. Nafta, which is under renegotiation right now, has been a bad deal for USA. Massive relocation of companies & jobs. Tariffs on Steel and Aluminium will only come off if new & fair Nafta agreement is signed,” Trump tweeted on Monday.
Trump was expected to finalise the planned tariffs later in the week, posing a tough challenge for US trade representative Robert Lighthizer, Canada’s foreign minister Chrystia Freeland and Mexican economy minister Ildefonso Guajardo. They were meeting in Mexico city on Monday to wrap up the latest round of discussions on revamping the 1994 Nafta deal. – Reuters
