Did Donald Trump just take the trade war to a whole new level?
President Donald Trump is reinstating tariffs on steel and aluminum from Argentina and Brazil, nations he criticized for cheapening their currencies to the detriment of U.S. farmers, and again called on the Federal Reserve to loosen monetary policy.
Linking his trade agenda with his Fed criticism in an early morning tweet, he said the two South American countries “have been presiding over a massive devaluation of their currencies. which is not good for our farmers.”
…..Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen – Fed!
The president’s action amount to retaliation against two nations that have become alternative suppliers of soybeans and other agricultural products to China, grabbing market share away from the U.S. Argentina’s peso plunged earlier this year on election results putting a left-wing candidate in the presidency. Brazil has intervened multiple times in the past month to support its devaluing real.
Brazil’s President Jair Bolsonaro said he would talk to his economy minister before reacting to Trump’s comments on the Brazilian real and the imposition of steel tariffs.
“If needed, I can also talk to Trump, I have an open channel with him,” he added as he left the presidential palace.
It signifies a potential new phase in his trade wars in which foreign-exchange markets are the battleground
In a second Twitter post, Trump signalled that he wants the U.S. central bank to do something about suppressed currencies.
Trump has long grumbled about the dollar’s strength and urged the Fed to abandon decades of precedent and act to weaken the greenback. The U.S. government’s dollar policy has traditionally been directed by the Treasury Department. That has prompted fears that the U.S. could lead the world into an era of weaponized monetary policy.
While such a currency war hasn’t happened yet, Monday’s move marks the first time Trump has linked the imposition of tariffs explicitly to currency movements. As such, it signifies a potential new phase in his trade wars in which foreign-exchange markets are the battleground.
Stocks, Forex Moves
The U.S. has imported about 3.8 million metric tons of steel from Brazil so far this year, most of which are slab, according to U.S. Census Bureau data. Brazil steel accounts for about 3.5 per cent of the 110 million tons of steel consumed in the U.S. a year.
Steel and iron products are the second biggest Brazil export to the U.S., tracking only crude oil and totalling $2.25 billion between January and October, according to Brazilian government data.
The Brazilian real was little changed at 4.24 per dollar at 7:30 a.m. in New York.
AK Steel Holding Corp. rose 2.9 per cent in premarket trading at 7:32 a.m. in New York. U.S. Steel Corp. was up 0.7 per cent, and Steel Dynamics Inc. was also indicated higher.
The iShares MSCI Brazil exchange-traded fund, meanwhile, rose 0.4 per cent. Brazilian steelmaker Gerdau’s American depositary receipts declined 0.5 per cent.
In March 2018, Trump authorized a 25 per cent tariff on steel imports and a 10 per cent duty on aluminum — import barriers that heralded the start of his administration’s hawkish push on trade — after a government report found that foreign shipments of the metals imperil national-security interests.
He then directed U.S. Trade Representative Robert Lighthizer to negotiate with countries seeking to turn their temporary tariff exemptions into permanent ones.
In August last year, he gave South Korea, Brazil and Argentina targeted relief from quotas imposed on inbound steel shipments to protect U.S. producers. The move allowed buyers to request exemptions for imports from key suppliers.