Trump keeps backing down from his worst impulses -- and it could be great news for the economy

Joe Raedle/Getty ImagesPresident Donald Trump.

  • President Donald Trump has fallen into a cycle of backing off initial tough talk on trade fights.
  • The easing of Trump’s new tariffs on both China and metals could be a positive sign for the US economy.

A familiar pattern is emerging in President Donald Trump’s highly publicized moves on trade in recent weeks: Trump announces tariffs in dramatic fashion at the White House, only to back off in the days and weeks that follow.

“President Trump is, for many, the big bad wolf,” Fraser King, an analyst at Citi, said in a note to clients on Monday. “But unlike the Grimm fairy tale, he huffs and he puffs, but he rarely blows the house down.”

The posturing has led to days of seesawing in the markets. On Tuesday, for instance, the Dow Jones industrial average fell more than 350 points amid fears of a Trump administration crackdown on China’s investment in US tech companies. By Wednesday morning, Dow futures were up as fears of a trade war eased amid Trump’s praise of China’s president, Xi Jinping.

In total, Trump’s jostling appears to be taking the edge off some of the administration’s recent trade crackdowns, and it could be good news for the US economy.

“Trade talks going on with numerous countries that, for many years, have not treated the United States fairly,” Trump tweeted. “In the end, all will be happy!”

Trump backs down with allies …

Fears of Trump’s trade crackdown started with his March 1 announcement of tariffs on steel and aluminium imports to the US.

At first, Trump and some administration officials said no country would be exempt from those tariffs. It prompted an uproar from US allies such as Canada and the European Union, which promised to strike back at the US with trade restrictions of their own.

Over the next several days, however, the Trump administration began to back off. First, Canada and Mexico got exemptions – then, negotiations began with other allies.

Last week, the administration said the European Union, Australia, Argentina, Brazil, and South Korea were given exemptions pending renegotiations of certain trade deals. That means five of the top 10 importers of steel into the US will not be subject to the new import tax.

… and China, too

Then last week, Trump announced tariffs on $US50 billion worth of Chinese imports. Trump also promised it was just the “first of many” against China.

China promised retaliatory measures and said the country wouldn’t back down from a trade war, spooking economists and investors.

But within days of the announcement, the mood once again changed. On Sunday, The Wall Street Journal reported that the US and China would enter into negotiations to reduce the trade tensions between the two countries. The report said it could even result in more US access to the Chinese market.

“The tough talk on trade is more of a cultural club in which to generate political buzz and build on the momentum of the deal-maker brand,” said Chris Krueger, an analyst at Cowen Washington Research Group. “After all, Trump used the word ‘negotiate’ more than ‘tariffs’ during his 232 ‘proclamation’ signing. Trump just wants ‘wins’ and is looking to define trade victories in his own manner.”

It could be good news for the economy

Greg Valliere, the chief global strategist at Horizon Investments, said Trump’s jostling indicated a softening on the president’s protectionist inclinations.

“The temperature is falling on trade as the US exempts most allies from steel tariffs and the Trump administration cools the rhetoric,” Valliere wrote Tuesday. “Our guess is that top Wall Street leaders got to Trump, Steve Mnuchin and others late last week, telling administration officials to dial it back. And they have.”

Economists fear that a trade dispute could escalate, with ever-increasing restrictions that limit the global flow of goods, and even push the US into a recession.

The gradual easing of the tariffs, however, appears to show a pattern that could limit their impact and ultimately avoid the worst consequences of a trade war.

King, the Citi analyst, said that given Trump’s edits to his measures already and China’s reluctance to get into a protracted trade fight, the likelihood of a full-blown trade war is limited.

“Much more likely that China comes to the US with some form of compromise option, Trump can claim a big win back home, and the world returns to normal with some slight adjustments to the way a few products trade,” King said.

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.