Trump may have 'a method to his madness' by teasing a trade war -- but it could still end in chaos

  • President Donald Trump’s tough recent talk on trade gave him some small victories, in the form of new negotiations with China and South Korea.
  • His strategy may be an intentional ploy to extract gains in international trade.
  • While it’s showing some signs of working, experts say his posturing may eventually backfire.

President Donald Trump fell into a familiar pattern during the month of March, announcing tough trade actions and eventually backing off the most damaging possibilities when allies raised concerns.

The moves have seemed to produce to produce some results:

“There may be a method to his madness,” Greg Valliere, chief global strategist at Horizon Investments, told Business Insider.

But economists and analysts say Trump’s constant posturing on trade isn’t sustainable in the long-term.

Trump developed a useful pattern…

Valliere said the rhythms of Trump’s trade style became familiar over the past month, and other nations are starting to notice.

“It’s possible that many countries have gamed out the Trump style – all bluster and threats initially, leading to some modest trade concessions, giving Trump an opportunity to boast that he got results,” Valliere said.

Some analysts say Trump’s posturing may actually reflect a larger scheme from the president that represents his signature style of negotiating.

“Other administrations have gone to trading partners like China and asked for a fairer deal, only to get a cigar put out on their forehead,” Steve Chiavarone, a portfolio manager at Federated Investors, told Reuters. “I suspect Trump’s bucking of norms is absolutely part of his negotiating tactics.”

But others see a more complex situation. Gregory Daco, the chief US economist at Oxford Economics, said he suspects the rest of the administration may simply be trying to contain the fallout from Trump’s original comments.

“I don’t know if it’s a strategy by design, I don’t think that the decisions we’ve seen over the past few weeks have been fully thought through,” Daco told Business Insider. “What’s happened is more reaction to the president’s more flamboyant announcements.”

Daco said most of the negotiating and eventual softening was the work of other members of the administration trying to contain Trump’s impulses on trade.

Intentional or not, so far Trump got some major concessions out of the tough talk but that doesn’t mean the US will win so much that Americans get sick of trade wins.

…but it may not work for long

Daco said Trump’s constant jabs at allies could eventually provoke a more serious response.

“A big concern is that you end up in a situation where countries get a little bit tired of this quite aggressive approach from the US and decide to act a little bit more strongly as a reaction to the tariffs imposed by the US,” Daco said.

Other nations had already lined up action against the US before backing down as the Trump administration negotiated exemptions.

Trump’s strategy could also risks alienating allies that could be helpful in more expansive trade disputes. As Fred Bergsten, a senior fellow at the Peterson Institute for International Economics, argued in a recent analysis, tough action against actual trade rule violators, like China, requires action from more than just the US.

“To effectively attack China’s trade and investment policies, however, the United States must have allies,” Bergsten said. “We no longer have the power to unilaterally compel other countries, especially a superpower like China, to mend their ways.”

With the possibility of a backfire looming, Trump may be slowly recognising that his strategy isn’t necessarily sustainable in the long-term, Valliere said.

“I’m not ready to sound an all-clear but it appears that Trump listens to the markets, which quite clearly are telling him to cool it,” the strategist said, referring to days of stock-market plunges that have accompanied Trump’s announcements..

If the president doesn’t learn, Daco said, that might put the US in a tough spot.

“Think about somebody playing with a knife on a playground,” Daco said. “The other kids might decide to be careful initially but after a while there might actually be more severe consequences and actions for someone wielding a dangerous instrument.”

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