Daily Comment (May 1, 2018)
by Bill O’Grady and Thomas Wash
[Posted: 9:30 AM EDT]
Tariff extensions: Last night, President Trump announced he would extend the deadline for temporary trade tariff exemptions for U.S. allies by an additional 30 days. Earlier this year, citing national security concerns, President Trump placed trade tariffs on foreign steel and aluminum. The president wants U.S. allies to accept either quotas on steel or a deal on industrial goods tariffs in exchange for permanent exemptions. Deals with Argentina, Brazil and Australia are close to being finalized, while Canada and Mexico are also close to a deal. Meanwhile, the European Union is reluctant to begin discussions without a permanent trade exemption first, claiming the temporary exemptions cause market uncertainty that affect business decisions. The temporary trade exemptions come as the U.S. prepares to send representatives to China to discuss trade.
Nuclear plans in Iran? Yesterday, Israeli Prime Minister Benjamin Netanyahu revealed an archive of stolen nuclear plans from Iran to prove that Iran lied about its nuclear program. The archive did not include any evidence that Iran has broken the nuclear agreement since it took effect in 2016. In response to the accusation, France Foreign Minister Agnes von der Muhll stated that this new information could provide leverage for getting additional assurances from Iran in order to keep the deal in place, but cautioned that the archived information will be studied before there is a final decision. Although there is still a lot of uncertainty about whether President Trump will pull out of the deal, it has been reported that he knew about the archive as early as March 5. Therefore, we do not believe the president’s position has changed.
Mueller interview: This morning, questions that special counsel Robert Mueller would like to ask the president were leaked to the NYT. Currently, the president’s lawyers are negotiating the terms of a possible interview between President Trump and Mueller in order to speed up the investigation. Although most of the questions were related to accusations of obstruction of justice due to the president’s handling of James Comey, there were also questions about the president’s ties to Russia and the relationship he had with his advisers. That said, impeachment is still very unlikely and the Russia investigation appears to be headed to a close.
Taiwan in retreat: The NYT reports that China was able to convince the Dominican Republic to sever diplomatic ties with Taiwan in exchange for increased trade. The deal will likely lead to further isolation of Taiwan, which China still considers a part of its territory. The relationship between Taiwan and China has become tenser with the election of Tsai Ing-wen, who has earned the ire of China after refusing to endorse the “one China” policy. In response to Ing-wen’s rejection, China has pressured countries to cut diplomatic ties with Taiwan in order to force her government to reconsider its stance. As of right now, it appears China will use soft power to force Taiwan back into its orbit but this approach may change as China is becoming more assertive throughout the Pacific. We will continue to monitor this situation.
Fed rate decision: Today, the Federal Reserve is expected to leave interest rates unchanged, but rising inflation and steady economic growth has led many to speculate that the Fed could raise rates as early as next month. As a result, the dollar has strengthened against peer currencies.