Tuesday, June 11, 2019

Should Financial Markets Take Seriously Anything Trump Says?: Mexico Denies Trump’s Claim of Secret Concessions in Deal

By Robert Wenzel

President Trump has been claiming that there is more to the recent deal announced by the United States and Mexico that caused Trump not to carry through with his tariff threat.

In fact, Trump has tweeted about a secret part of the deal:
But Mexican officials are saying there is no secret part of the deal.

“There is no other thing beyond what I have just explained,”  Mexican Foreign Secretary Marcelo Ebrard said, holding up a paper and pointing to the previously announced details, reports AP.

Over the weekend, Trump also claimed another new element of the deal, tweeting that Mexico had “AGREED TO IMMEDIATELY BEGIN BUYING LARGE QUANTITIES OF AGRICULTURAL PRODUCT FROM OUR GREAT PATRIOT FARMERS!”

But AP reports that Mexican officials say no agreement on farm goods was reached as part of the talks.

It is getting to the point where financial markets are ignoring Trump's huffing and puffing. But should they?

Paul Krugman rarely gets his analysis correct, but he nails the current situation:
The events of the past few weeks destroyed whatever credibility Donald Trump may still have had on economic policy. And investors are celebrating. At this point, evidence that Trump tweets are sound and fury signifying nothing is, in effect, good news.

Let’s review what happened. First, having gone to great lengths to get a new trade agreement with Mexico and Canada — an agreement that was very similar to the existing agreement, but one he could slap his own name on — Trump basically blew up his position by threatening to impose new tariffs unless Mexico did something about border issues that have nothing to do with trade.

This obviously weakens if it doesn’t destroy Trump’s ability to negotiate future agreements, on trade or anything else. After all, what’s the point of making deals with an administration that reneges on its promises whenever it feels like it?

But then, barely a week later, Trump called the whole thing off in return for a statement by Mexico that it would do … things it had already agreed to months earlier...

Now, not having a destructive trade war is a good thing. But what the world learned from this climbdown is that Trump’s threats are as empty as his promises...financial markets are basically discounting Trump’s rants; they’ve stopped treating evidence of his unfitness for office as news.

Yes, he’s deeply ignorant about policy. Yes, his rage-tweets constantly remind us of his egomania and insecurity. But we’ve known all that for a while; Trump’s personality is, in effect, already priced in.
But Krugman correctly cautions, markets shouldn't be so sanguine about the Stable Genius.
[A]s of right now, markets appear to be betting that he tweets loudly but carries a small stick.

Is this a good bet? I have my doubts.

The trade war with China still seems to be on, and Europe may be next. More generally, when you have an attention-seeking president, ignoring his antics could well provoke him into even more extreme behavior. But for now, investors are effectively treating Trump as crazy but harmless.

Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.com and Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bank and most recently Foundations of Private Property Society Theory: Anarchism for the Civilized Person Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. More about Wenzel here.

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