Trump and Protectionism – a case of déjà vu

US President Donald Trump’s protectionist stance is not new. In fact, it is one that he has held for 31 years. But we see a silver lining even as trade skirmishes and tit-for-tat measures deepen...
Taimur Baig29 Mar 2018
US President Donald Trump. Photo credit: AFP Photo

To those who think that US President Donald Trump is introducing various import tariffs based on electoral considerations, we offer the following historical factoid. In 1987, Trump, entertaining perhaps a presidential bid for the first time, took a full-page advertisement in the New York Times. In that diatribe, he railed against foreign countries – ostensible allies – taking advantage of US security protection on the one hand and stealing US jobs through cheap exports on the other. Thirty-one years later, Trump has the same convictions, willing to exempt some allies and negotiate with others the terms of market access, something he believes should cost those who enjoy US protection.

Amid the rhetoric and prognostications around the tariffs being imposed, a few critical facts have been ignored:

First, US steel production today is not materially different from what it was three decades ago. While year-to-year production figures fluctuate owing to economic cycles and idiosyncratic factors, if we average the annual output across decades, we find that the trend has been flat since the 1980s. Indeed, domestic production today makes up the same share of total US steel demand (about 80%) as it did in the early 1980s.

Second, China is by far the largest steel producer in the world today, but the US remains the third-largest. 

Third, while production has been broadly unchanged, US employment in the steel sector has fallen sharply (and productivity has soared), owing to better usage of technology and automation. Indeed, this has been a worldwide phenomenon. 

Robust macro condition – a timely shock absorber as trade tension escalates. As trade skirmishes and tit-for-tat measures deepen, the only silver lining is that global economic conditions are robust and are, perhaps, capable of absorbing some shocks. The listless performance in global markets in February and March stands in contrast to real economic indicators, which have been strong. We are, however, beginning to worry that the latter phenomenon may have peaked. Indeed, after more than a year of stellar growth and a modest pick-up in inflation, there are some signs of global growth momentum peaking and inflation pressures dissipating. US manufacturing activity, for instance, appears be strong but lacking upward momentum, with mid-50s readings forming a top for the time being. Indeed, on a year-on-year basis, the US purchasing managers’ index (PMI) is flat. Going beyond manufacturing, taking stock of growth-critical variables such as auto sales and housing, the US economy looks softer presently than it has been in a while. The Atlanta Fed’s gross domestic product (GDP) nowcasting model’s March readings show growth dipping below 2% for the first time in a year. These readings underscore the fact that a cyclical sweet-spot notwithstanding, structural hurdles (aging, weak productivity, and twin deficits) will force a ceiling on US growth, say to around 2.5%.

US economic momentum to stay strong; positive cycle prolonged modestly by stimulus measures. To be sure, concurrent and leading indicators remain consistent with a market-pleasing mix of good growth and moderate inflation. There has been a tendency among some to incorporate the tax cut and wider fiscal deficit into much higher-than-trend growth and inflation this year, but we are not in that camp. We recognise the underlying strength of the US economy and expect the cycle to be prolonged by these stimulus measures, but only modestly. The primary reason for our sober outlook is that we do not think the tax cuts or spending measures are particularly well-targeted toward areas of the economy that could provide solid returns. A tax cut aimed at the middle-and-lower middle income class.

Click here to read the full Global Macroeconomics - US report.

Click here for the latest CIO Insights publication.

Click here to see all our articles on CIO's 2Q18 outlook.

  Taimur Baig, Ph.D.
Chief Economist - G3 & Asia

The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong.

PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No.