President Donald Trump’s border-wall “emergency” is ridiculous. Illegal border crossings have fallen significantly during the past 15 years, not risen. Other dangers are a far bigger threat to the safety and property of Americans, including gun violence, opioid addiction, car crashes and suicide.
But everybody knows Trump needs his border wall as a sop to anti-immigration voters. So, now we have the spectacle of a public snatch operation in which Trump will grab money for his wall from Congressional appropriations for military construction and other things, triggering a long legal battle that will determine if he can actually do that.
Investors, thankfully, don’t have to care. The good news about Trump’s absurd emergency declaration is that it gave him cover for signing federal funding bills and averting another government shutdown. With that smoldering garbage can pushed to the side, investors can better focus on an issue that does matter to markets: trade.
Trump signaled this week that he’s willing to extend the March 2 deadline for a trade deal with China. Markets interpret this as Trump softening, which means he probably won’t impose new tariffs on Chinese imports, as threatened. There could even be a deal that leads to the revocation of the tariffs Trump imposed last year.
This process will probably be messy for the next few months, and the mercurial Trump could always toss a wrench into the gears. But trade developments are modestly positive this week, which is why the Trump-o-meter reads MEDIOCRE, the third-best ranking.
It will be hard for Trump to score much higher on trade, because he’s negotiating out of a problem he created. Trump keeps saying that “China is paying us billions in tariffs,” but that’s not true. American firms, not Chinese ones, are paying the tariffs, and either eating the costs or passing them on to customers. The tariffs only hurt Chinese exporters if the higher costs paid by Americans cut down on orders. That usually does happen, but tariffs are a poor negotiating tool because they hurt us before they hurt anybody else.
Trump is conceding in trade negotiations
By extending the deadline, Trump is making a concession in the negotiations with China. Maximum leverage in such negotiations typically comes right before a deadline expires, when one side is able to persuade the other something bad will happen once the deadline passes. Trump has given up that leverage. Whether he realizes it or not, that means he will probably have to settle for a deal that contains far less than he wants (a recurring theme in Trump’s presidency).
China probably won’t make the structural reforms Trump is after, such as privatizing huge state-owned companies and ending its endemic theft of Western technology. But China can give Trump something by buying more U.S. exports and opening more corners of its economy to American firms. Up till now, it wasn’t clear if that would be enough for Trump to agree to a deal. Markets now seem to be betting that it is.
The S&P 500 index rose about 2.2% for the week, a nifty gain driven largely by the improving outlook on trade. Trump has now created an expectation that he’ll settle with China without roiling markets. The more markets believe that, the more Trump will have to do it, or take responsibility for consequences that will get uglier as markets go higher.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman