The Macro Report | February 2018

Sparking a U.S. trade war?


We are seeing a return of the threat of protectionism in the United States. President Trump recently placed tariffs on imported solar panels and washing machines, sparking concern the country may prompt trade wars. This comes as the administration renegotiates the North American Free Trade Agreement (NAFTA) with Mexico and Canada. China has also been a target of recent trade rhetoric. If the administration withdraws from NAFTA, or imposes a spate of anti-Chinese trade measures, there will be downside risks to the U.S. economy.

As trade issues linger, investors also have to contend with a weaker dollar. Treasury Secretary Steven Mnuchin broke with tradition in January when he declared that a weaker dollar is good for American trade. Interestingly, although Mnuchin's comments paved the way for more losses in the greenback, they weren't the key to the currency's weakness. Its decline to three-year lows in January was driven by the U.S. current account deficit and risk appetite. Stronger global conditions also play a role. For example, Germany's economy continues to be a bright spot in the eurozone — enough to encourage local unions to push for higher wages.


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We are seeing a return of the threat of protectionism in the United States.