May you live in interesting times. We have had no shortage of this. What a ride! Trump has two outcomes, and one endgame. He knows Canada/Mexico, as well as the EU need the US more then we need them. He doesn’t want to implement and maintain the tariffs, but he wants to bluff, or at least run with this charade long enough to get both groups to blink first.
Fair trade is a joke of a term. No such. Fair is a subjective word. Debate ends with that. Free trade is another joke of a term. Can’t happen. Trump knows all of this. He has two outcomes, and one endgame. The endgame he wants is a reduction of the trade imbalance. You see, all international nations have played currency manipulations behind the seasons using their Central Banks since the recovery post-Great Recession. How? Bond offering and interest rate tinkering has artificially propped up their currencies in relations to others. That brings about the trade imbalance Trump hopes to end. He wants it to be fair in that regard. Let the actual market decide what the currencies should trade at. Not the Central Banks.
The US has been the benefactor to the best, and strongest recovery post-2008. This puts the ball in our court. What does Trump want? He wants to currency manipulation to stop. How does he intend to stop it? He will put on this act of creating a Trade War until Central Banks stop manipulating currency though their Central Banks with bond offerings and interest rate tampering. This lowers the artificially created imbalances and gets us to ‘fair-ER trade.’
What are the two outcomes? You need us more then we need you. That’s the game the US can play right now. The US has two blocs that Trump can play with. Bloc one is Canada/Mexico + EU. Again, they need us more then we need them. It doesn’t bode well for them to engage in a Trade War. All nations become weaker economically when they collectively engage in a Trade War, but it then becomes a game of who can survive the longest underwater. The US can, and will survive the longest. All the other nations know this. They don’t want to go down this road. So, what happens? Back door promises that these nations will begin to fix their imbalances by not tinkering with their currency through bond offerings and interest rates. I am confident all the nations in Bloc One will realize Trump’s request, and the ‘War’ will lack escalation. No one in this block can afford it. We can.
What is the other outcome? An Asian/US alliance will form. Look, China already blinked. Japan is onboard. South Korea is undoubtedly onboard. We four can easily form a trade bloc that will be unrivaled. Trump knows this. That is why he has such emphasis on NK, and didn’t care about ripping up Iran Deal. Who lost the most from the Iran Deal? The EU. Who gains the most from peace and prosperity in NK? South Korea, China, and Japan. The US can leave the EU and NAFTA nations behind, if the resulting trade ally is Korea, Japan, and China.
Trump knows what he is doing. He is playing a masterful game of chess with all of these nations while intertwining international diplomacy and economic demands. He knows what the US needs, and what the US can afford to lose. The new bloc that will rise from this behavior will be the US with our Asian allies. It is up to Mexico/Canada and the EU if they want to come along for the ride. The only way they are able to will be to stop currency manipulation. Japan and China have already listened. It will be wise for the rest of the world to do so, as well.