President Trump has gone to work

Donald Trump has completed his first week as the 45th U.S. President. We can therefore look at the actual measures he has taken instead of speculating, as before, what he would or would not do in the economic field, among other things.

One of his first acts was announcing that the US would withdraw from the TPP, the free trade agreement talks between more than 10 countries around the Pacific. This could be a hint as to how Trump will position himself regarding the TTIP, the free trade agreement between the EU and the US. Speaking about the EU: President Trump has made it loud and clear what he thinks of that project. Immediately, when he said in an interview that preserving the euro will still be a difficult task and hinted that he is not really concerned about the future of the EU. But he also indirectly let us know what he thinks of the EU.

He stated that he is 'a big fan' of the United Kingdom, the country that is working on its anything but friendly separation from the EU. Here, openly describing himself as a fan of one of the parties in such a divorce implies that the other side, in this case the EU, doesn't care much for him. In fact, President Trump even added fuel to the feud within the EU in a very sensitive area. He called the EU 'a tool of Germany', something that has been received with acclaim in countries such as Greece and Italy. It is easy to imagine that such countries, now that they know that they can count on support in Washington, will take a more assertive position within the EU and the eurozone, and that Trump can thus reignite internal tensions in the EU and the eurozone. And the man he wants to appoint as US ambassador to the EU has recently compared that Union to the Soviet Union, which is seen as quite an insult. 

President Trump also threatened German auto companies that have factories in Mexico with a 35 percent tax. Auto giant BMW, which plans to open a factory there in 2019, was told not to do so by the American President. The new President wants to conclude a trade agreement with the United Kingdom very quickly.

But that was not all President Trump has done economically. In his first week, he broke the unwritten rule that his predecessors observed in recent decades, namely to either not speak out about the value of the dollar or, if they said something about it, to repeat the same sentence over and over, namely that ' a strong dollar is in US interest'. In his first week, President Trump called the dollar too strong for the US and tried, with success, to lower its value. It is almost certain that he will do so regularly in the future.

Mexico can expect a 20 percent tariff on all exports to the US. In this way, President Trump wants to pre-finance the construction of a wall on the border between the US and Mexico. Pre-finance because he wants to send the bill to Mexico later. That is something that has caused political bad blood; the Mexican President has now canceled a planned visit to Washington.

Those tariffs violate the North American free trade agreement, NAFTA, which President Trump wants to crack open and renegotiate. If that does not go to his satisfaction, President Trump wants to cancel the agreement if necessary.

On the geopolitical front, the new President has already given China a nudge. His spokesman and foreign minister have said in recent days that the islands in the China Sea, which China seizes and over which the country is arguing with virtually all neighboring countries, are in international waters and that the Americans will ensure that they are "not taken over by any country," said President Trump's spokesman. His Secretary of State even said the US should prevent construction on those islands. China is building airports and other, mainly military, infrastructure on the disputed islands. “China must first stop building and then leave the islands,” he said.  

That's not exactly something China wants to do, which increases the likelihood of a conflict between the two superpowers. As a countermeasure, Beijing has prepared some of its long-range nuclear weapons, missiles that can target any place in the US, in a highly unusual manoeuvre.

If this list is somewhat representative of how President Trump will behave economically and geopolitically, then we should keep in mind that more measures will come and words will be used that increase the likelihood of conflict. That is not good news for the outlook for global economic growth and that of the US, and if only for that reason could have significant implications for the Fed's monetary policy, which in turn would affect the ECB's proposed policy. in the euro zone.

That is something we will go into in more detail during our Financing and Capital Markets Masterclass on February 14, in Lelystad. 

Edin Mujagic

Edin Mujagic is a macro-economist and chief economist at OHV Asset Management. He focuses on global central banks, and in his blogs he mainly writes about the ECB and Fed. He has also written several books.

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