US PRESIDENT Donald Trump’s protectionist id finally slipped its leash on Thursday, spreading panic from Wall Street to C-suites and beyond.

His announcement shortly after noon that he intends to slap stiff and sweeping tariffs on imports of steel and aluminium immediately sent stocks sharply lower. The Dow Jones industrial average dropped by more than 500 points, as if in a we-told-you-so to Trump from National Economic Council Director Gary Cohn and Treasury Secretary Steven Mnuchin. The two Goldman Sachs veterans have marshalled the president’s fixation on the stock market to push back against precipitous, punitive trade measures that would spook investors.

That argument worked until it didn’t. After a 24-hour stretch marked by turbulence unusual even by this White House’s standards, Trump shocked his own aides and everyone else by plunging unilaterally toward a decision that could set off a global trade war. But what happens next is far from clear. The president postponed an official decision on the matter until next week, leaving more questions than answers about what form it will ultimately take. He has a wide berth to craft the shape, scope and timing of tariffs that he pegged on Thursday at 10 per cent for aluminium and 25pc for steel — he could exempt any industries or countries he chooses.

‘When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,’ the US president tweeted on Friday

That uncertainty has jumpy investors, among others, freshly attuned to the Trumpian tumult. The bear case for stocks, via Brian Battle, director of trading for Performance Trust Capital Partners in Chicago: “The sell-off will continue until this is revealed as a one-off or a shot across the bow. . . The bigger question is what will the response be from the rest of the world? If it becomes tariff-for-tariff, global GDP will collapse, and stock markets globally will be in peril.”

The bull case, via Stephen Massocca, managing director of Wedbush Securities: “I believe the biggest impact was today. Everybody was on pins and needles because of what happened in February, so it’s not a big surprise that the market moved down on this — it was set up for it.”

The investor response Thursday anticipated the tariffs’ lopsided economic effect, boosting domestic steel and aluminium makers while punishing a much wider array of businesses. “All 11 major sectors of the S&P 500 fell, led by declines in shares of industrial and financial firms. Manufacturers that use steel and aluminium to produce goods were among the hardest hit stocks,” the Wall Street Journal’s Michael Wursthorn writes. “Industrial heavyweight and Dow component Boeing fell $12.52, or 3.5pc, to $349.69, erasing roughly 86 points from the blue-chip index, while car maker General Motors shed 1.56, or 4pc, to 37.79. Shares of several US steel and aluminium companies, meanwhile, rose after the tariffs were unveiled.”

On Friday morning, Trump explicitly invoked the spectre of a trade war and called it a good thing. “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore – we win big. It’s easy!” Trump wrote on Twitter.

Corporate leaders from industries that stand to get pinched by higher metal prices or choked-off trade were quick to register their alarm. From the FT’s Ed Crooks, Patti Waldmeir, and Shawn Donnan: “The heads of the National Tooling and Machining Association and the Precision Metalforming Association were among many steel users that warned of the damage that could be done by the import duties . . . They added that 6.5m people were employed in the US in businesses that use steel and aluminium, compared to just 80,000 working in the steel industry . . . Thom Dammrich, President of the National Marine Manufacturers Association, said the proposed aluminium tariffs could end up ‘destroying our members’ ability to build boats in the US’.”

Some automakers and parts suppliers piled on, too. “The Motor Equipment Manufacturers Association, the chief automotive components supplier trade group, said the new tariffs would endanger jobs and raise costs,” The Wall Street Journal’s Andrew Tangel writes. “A lobby representing foreign auto and parts makers in the US, the Association of Global Automakers, also criticised the move and linked it to a broader White House agenda of “risky renegotiations” for Nafta and other trade deals. A core member of that association, Toyota Motor Corp., issued an unusually blunt statement condemning the White House move. ‘The Administration’s decision to impose substantial steel and aluminium tariffs will adversely impact automakers, the automotive supplier community and consumers,’ the Japanese automaker said.”

Suffice it to say, Trump’s decision on the matter will carry world-spanning economic consequences, and the matter deserved the attention it received Thursday. As significant looking ahead, though, is the dynamic within the White House that produced it. It’s not too great a leap to say the administration appears to be unravelling.

Bloomberg/Washington Post Service

Published in Dawn, The Business and Finance Weekly, March 5th, 2018