US: Success of protectionism may be limited - ING

President Trump is trying to cut the US trade deficit, particularly with China, but his success may be limited given huge tax cuts and rising wages are giving US consumers more money to spend, suggests James Knightley, Chief International Economist at ING.

Key Quotes

“Much of the increase in cashflow is being used to buy imported consumer goods, so getting a smaller deficit is going to be challenging. The fact so many countries have since been excluded from the US tariffs shows a willingness to do deals to avoid trade wars while there was growing optimism in Mexico that NAFTA will survive with Mexico willing to offer concessions to Trump.”

“China reportedly offering to talk also gives some hope that the situation will calm. The fact that the Republicans lost the Pennsylvania House seat, despite it being a steel area, suggests a level of ineffectiveness of the protectionist policy with the electorate as we look towards the mid-terms in November. Clients broadly felt the protectionist rhetoric was more bark than bite and that things will calm down.”