Donald Trump has finally admitted that his trade war with China is hurting the stock market, so much so that the Dow Jones Industrial Average (DJIA) would be a whopping 10,000 points higher had he not picked a fight with the Chinese. He said – “If I wanted to do nothing with China, my stock market – our stock market – would be 10,000 points higher than it is right now.”
But the U.S. president was quick to justify his trade war – “But somebody had to do this. To me, this is much more important than the economy … It was out of control. They were out of control.” Trump’s acknowledgement that the U.S. stock market is taking a direct hit from the trade war he started in March 2018 suggests that everything is not as rosy as he has been claiming.
In March 2018, about 18 months ago, President Donald Trump confidently – even arrogantly – said that trade wars are good, and easy to win. His first shot at Mexico, imposing a 25% tariff on steel and a 10% tariff on aluminium, helped spark a 420-point drop in the Dow Jones Industrial Average (DJIA) and started trade wars with a couple of countries, especially with China.
But what was supposedly a quick and an easy trade war with China appeared to have turned into a nightmare for the U.S. president. While allies like Mexico, Canada, Japan, India and even the European Union have not dared openly challenge the United States, the Chinese refuse to kowtow to the Trump administration – telling the U.S. to bring it on instead. That upset Trump terribly.
About 2 weeks ago (Aug 21), in the midst of answering a question at the White House about the ongoing trade war with China, President Donald Trump stunningly turned from reporters, looked to the heavens and proclaimed – “I am the chosen one.” But as people started mocking and ridiculing his “Messiah complex”, Trump argued that his remark was sarcasm and he was merely joking.
Two days after acting as if he was the God’s envoy, Trump gave the “order” to all American companies in China to leave the world’s second largest economy. This time, he insisted he has the power under the Emergency Economic Powers Act of 1977, which says the president can deal with “any unusual and extraordinary threat … to the national security, foreign policy, or economy of the United States.”
In reality, however, the International Emergency Economic Powers Act (IEEPA) gives the president powers to regulate commerce “after” declaring a national emergency in response to any unusual and extraordinary threat to the U.S. It does not give him the power to order U.S. companies to leave other countries. Furthermore, no emergency has been declared in relation to the trade war with China.
In comparison, President George W. Bush’s action was justifiable when he issued Executive Order 13224 under IEEPA to block the assets of terrorist organizations – following the 9/11 or September 11 terrorist attacks. In the case of Trump, it was his own administration – not Beijing – who first declared a trade war with President Xi Jinping some 18 months ago.
The U.S. can’t simply declare a national emergency now just because the Chinese decided to retaliate in kind, and Donald Trump suddenly found out that a trade war isn’t as simple as he had anticipated. It would make the president look really dumb and the U.S. a sore loser that has no respect for the rule of law. But one must take Trump’s latest bizarre remarks with a pinch of salt.
In July, he similarly said the stock market would have been up by another 10,000 points – if the Federal Reserve under the leadership of Jerome Powell had not raised the interest rates so fast. So, it’s everyone’s fault but his own economic policies that the Wall Street refuses to skyrocket another 10,000 points. Clearly, Trump is building a narrative that the downturn is him fighting for America.
Trump is well known for linking poor stock market performance under his predecessors, but praising stock market jumps under his own administration. To be fair to the president, the Dow was just 18,000 when he was elected nearly three years ago. Today, it’s above 26,000 (26,728.15 to be precise). But it has not been performing since he launched his trade war with China.
When Trump officially asked the United States trade representative (USTR) to investigate China on March 22, 2018, imposing tariffs on US$50–60 billion worth of Chinese goods as a response to the unfair trade practices of China over the years, the DJIA plunged to 23,533.20. And based on today’s index, that’s only a 3,194 points increase – after 18 months of a trade dispute.
In other words, the stock market was flying from 18,000 points after Donald Trump won the presidential election in November 2016 to above 26,000 points in January 2018, just before he started his trade wars. That means the Bull Run had added 8,000 points during the 15 months he became president up to stage before he went to war with China.
Therefore, if Trump had done nothing with China for the past 18 months, he calculated that probably the stock market would be about 10,000 points higher (8,000 + 3,194 points) today. The stock index has been basically flat since early of the year, and the president isn’t impressed. That’s probably why he recently asked whether Powell or Chinese President Xi Jinping is the “bigger enemy.”
His message to his supporters is this: if the stock market collapses, blame either the Federal Reserve chairman or China. But if somehow the Dow skyrockets to 36,000 points, it’s because of Donald Trump’s brilliant leadership, not to mention he’s the “chosen one”. For now, he has mastered the art of pushing the stock market – says something positive has developed towards a trade deal with China.
Still, despite his big mouth, Trump has kept well the real reason why his administration decided to start not only a trade war, but also a tech war, with China. He wants to contain and prevent China from becoming the world’s superpower. Obama’s foreign policy was based on the assumption and belief that trading with China would lead to positive outcomes such as liberalization.
Called a white supremacist by his own colleagues and critics at home, Trump considers China, and Russia for that matter, not as a partner to be engaged with, but as an emerging powerful competitor that must be defeated using whatever means. That explains why Huawei was targeted and based on his latest remarks, is even willing to bring down the U.S. economy in order to control China.