Have Trump Tariff Threats become a Bargaining Chip for Unilateral Trade Agreements?

Market reactions to Gary Cohn’s resignation as the White House chief economic advisor were swift and uncanny. One can only guess that every Goldman Sachs trader, Cohn’s former firm, were tipped off well in advance of his final decision to resign. The warning probably gave the firm’s traders enough time to prepare a severe sell off once the markets closed. Border line to insider trading, such a move might trigger an SEC investigation, but it’s unlikely. Like the NRA, Goldman Sachs ‘walks on many swamps’ in Washington, …and has for decades.

It’s not the first time that Goldman Sachs comes to Washington for a brief stay and leaves significantly wealthier. Henry Paulson was a classic example of a ‘wolf-in-sheep’s clothing’ during the financial crisis of 2009. One thing for sure, like the well trained traders that they are, Goldman Sachs alum know when to leave Washington just as they know when to exit a trade. Hence, Cohn’s resignation was just another timely departure. In December he achieved a key objective. namely, passing the Tax Reform bill. …and now that all that is done, it was time for him to leave.

Post Cohn, what next?

Intended or not, Cohn’s departure may be part of a much larger Trump/Navarro scheme.

Consider this possibility… What if the steel and aluminum tariff threats were actually a foil to coerce affected nations, which there are many, to request/beg for a unilateral trade agreement with the US? A prime example of this relatively ruthless negotiating strategy is the upcoming NAFTA renewal agreement involving both Mexico and Canada.

Surely politicians are expected to respond with counter protectionist measures and tough talk, but at the end of the day, the underlying message that will continue to resonate the most will be the implementation of a solution that will remove the tariffs completely, such as one that is conveniently wrapped into a unilateral trade agreement.

In essence, Trump/Navarro created the threat that would drive the outcomes they sought.

You may recall that early on during his first year in office, Trump bowed out of the Trans Pacific Partnership (TPP) agreement due to its multilateral structure. He accused it of being opaque and prone to unfair practices. Now with the stroke of one threat, he may very well have achieved his goal of undoing multilateral agreements altogether and replacing them with more transparent and comprehensive deals.

© 2018 Tom Kadala