How Markets Went from ‘Trump Trade’ to ‘Trade War Trade’

Mohit Oberoi, CFA - Author

Dec. 4 2020, Updated 10:42 a.m. ET

Trump trade

When Donald Trump was elected as the US President in 2016, we saw a sharp rally in some stocks, especially in the metals and mining space. Trump’s pro-growth policies and trillion-dollar infrastructure plans were expected to lift US metal consumption. The sharp rally in steel and mining shares was then termed “Trump trade” by analysts.

Immediately after Trump’s election, markets started factoring in the proposed tax cuts and pro-growth policies. Back then, markets ignored Trump’s agenda of tough trade policies. A year later, Trump unleashed the trade war in 2018, and “Trump trade” gave way to “trade war trade.” It started with tariffs on solar panels and washing machines in January 2018. Trump doubled down on his trade rhetoric by imposing Section 232 tariffs on US steel and aluminum imports in March. Section 232 tariffs targeted even allies like Japan and became a key bone of contention between the United States and its trading partners. After Trump targeted Huawei, we saw a sell-off in chipmakers like Broadcom (AVGO), Qualcomm (QCOM), and Intel (INTC). However, these stocks bounced back yesterday after Trump tweeted about his meeting with Chinese President Xi Jinping.

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Section 232 automotive probe

The Commerce Department has also completed its Section 232 automotive investigation. But for now, Trump hasn’t acted on the report. US automotive companies like Ford (F) don’t really favor tariffs on automotive imports. Last year, China raised tariffs on US automotive imports, which hurt companies like Tesla (TSLA).

So far, the Trump administration has managed to renegotiate KORUS (United States-Korea Free Trade Agreement) and NAFTA. Under the new NAFTA that’s been renamed USMCA, the US will gain access to Canada’s previously protected dairy industry. It also calls for more regional content in automotive.

However, the more contentious issue of a trade deal with China is still on the table. Will the upcoming G20 meeting help in that effort? We’ll have to wait and see. Read Why Wilbur Ross Doesn’t See a Trade Deal with China at G20 Summit for more analysis.


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