Gold: Unintended Consequences
Gold: Unintended Consequences from Maison Placements Canada
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President Donald Trump hailed the trilateral USMCA agreement as “historic news”, fulfilling a promise to scrap the worst trade deal ever. Yet after 13 months of difficult negotiations, the largely cosmetic NAFTA 2.0 increases American cars and trucks content by 20 percent. Again the president’s bark was worse than his bite. However, in creating chaos, this dealmaker did rack up a tweetable win for solving a crisis of his making. Fortunately, most of the central features of the 24 year old trade deal was retained. Since the US ran a $500 million dairy surplus last year with Canada, the so called dairy changes will increase American cheese imports ensuring another bragging tweet, even though dairy products represent just 0.06 percent of US – Canada trade. Canada however is unlikely to forget this battle particularly when labeled a “national security threat”.
Still, emboldened by his “success” and a similar soft agreement with South Korea, his team will mirror the tactics as a template for future negotiations with Japan and the EU. China is to be the main event. While NAFTA’s name was simply changed to protect the innocent, Mr. Trudeau would be happy in returning from “having a special place in hell”, to being described now by Mr. Trump, as “a good man and he loves the people of Canada”.
The bigger question though is how Mr. Trump’s wrecking ball approach to establish a new world order will shape the future international economic system. His brinksmanship has undermined decades’ long collaboration, undermining confidence in the United States on fears that tensions with Beijing could spiral beyond tariffs into a deeper confrontation. Pointedly, Trump’s weaponization of sanctions, tariffs and dollar access, risks retaliation which could undermine the dollar-based monetary system.
We believe his isolationism and rejection of globalism will radically change the geopolitical landscape with the vacuum, to be filled by America’s chief rivals, China and Russia. Also, as America isolates itself, left unsaid is that they too will retreat military-wise. The world looks very different now. Of concern, it has happened before when the Great Depression in the 1930s showed that trade wars and currency wars, go hand in hand with devastating effect.
Making Enemies of Friends
Still, buoyed by his success, Mr. Trump and his hard-line advisors believe that tariffs, sanctions and “moral suasion” will level the playing field between countries, even boasting in front of the UN that, “We reject the ideology of globalism and accept the ideology of patriotism”.
Although this unorthodox and thuggish style has infuriated America’s allies, the Democrats, the media and half the country, Mr. Trump is surprisingly effective. Since his election, he has successfully pushed through a trillion dollar tax cut that boosted the economy, limited immigration, stacked the Supreme Court and rebranded NAFTA playing to his all important base in advance of the November midterms. A bigger shock would be the Republicans retaining the House of Representatives, a tall feat indeed. Still the US seems at war with the world.