President Donald Trump is not known to sport tinfoil hats around the White House, despite a well-worn penchant for conspiracy theories and paranoia. But one storyline regarding aluminum foil makers should be of grave concern to Asian markets.
On Aug. 9, Trump's team took time out from jousting with North Korea to tax foil imports from China at a rate of between 16.5% and 81%. At the risk of overthinking things or delusional deduction, the timing smacks of retribution. Trump, it appears, is letting Beijing know he is furious that it has not tamed North Korean leader Kim Jong-un. This move against mainland tinfoil makers could be a harbinger of bigger trade clashes to come.
It also raises a tantalizing chicken-and-egg question. Are U.S.-China trade spats imperiling diplomacy over North Korea? Or do Kim's provocations bear responsibility for triggering a sideline commercial war between the two biggest economies?
Either way, Asia's experience with getting Trumped is just beginning. Out of the gate, Trump reneged on the Trans-Pacific Partnership trade agreement and next pulled out of the Paris climate-change pact. The "Trump trade" predicated on hopes that the dealmaker-in-chief would slash taxes, lavish $1 trillion on infrastructure and loosen reams of regulations is fizzling along with the White House's legislative prospects. Trump is stepping away from the strong dollar policy that was a bedrock principle for decades.
Two big Trump administration shoes could drop at any moment. One is military action on the Korean peninsula, damn the consequences. The best day of Trump's young presidency, remember, was April 6, when he fired 59 Tomahawk missiles at Syria. Kudos flowed his way from around the globe, including from his most acerbic critics in Washington. As Russia probes intensify and his approval ratings slide, Trump may seek to relive that high by shooting Tomahawks Pyongyang's way. We cannot rule out Trump gambling that the end -- taking a "fire-and-fury" stand against the Kim Dynasty -- justifies the epic loss of life and market chaos that would surely occur.
The second is making good on threats for tariffs as high as 45% on Chinese goods (via Twitter, no doubt). Few ever thought Trump's "bromance" with President Xi Jinping would last. Irked by Trump's Twitter bromides at Beijing in recent days, the official Xinhua news agency chastised him for "emotional venting." Explanations surrounding last week's tariff action further suggests the love is gone. As Commerce Secretary Wilbur Ross put it: "The Trump administration will not stand idly by as harmful trade practices from foreign nations attempt to take advantage of our essential industries, workers, and businesses."
Was Ross talking about Japan, too? Tokyo's recent move to slap 50% levies on frozen beef from the U.S. may imperil Prime Minister Shinzo Abe's own Trump bromance, one the prime minister spent great political capital cultivating. Ten days after Trump's shock election last November, Abe sprinted to Trump Tower to pledge allegiance to The Donald. That day in New York, Abe told reporters: "I am convinced Mr. Trump is a leader in whom I can have great confidence."
The Trumpian moment
Asian leaders, including Abe, can be forgiven for now having very little confidence. The dollar's declines, after all, could be the final nail in the Abenomics coffin. Recent data have not been kind to Abe's three-pronged assault on deflation and malaise. Nearly five years on, retail sales are stagnant and household confidence is in short supply. If Abe wonders why his approval ratings are lower than Trump's, the number 0.8 will help sort him out. That is how much, in percentage points, real cash wages fell in June year-on-year. Drum-tight labor markets are not getting the Bank of Japan anywhere near its 2% inflation goal.
Trump angling for a weaker exchange rate is headache enough for Abe, never mind him pulling the trigger on trade war threats that played so well on the campaign trail. Anything that throws China's indebted and bubble-plagued economy off balance would pose clear and present dangers to Japan. Even greater turmoil would ensue if Xi retaliated: devaluating the yuan; dumping $1.1 trillion of U.S. Treasury bonds; canceling all orders for Boeing planes; or levies on goods that slam Apple, General Motors, Walmart and any number of companies. As vital cogs in global supply chains, economies from South Korea to Thailand would get pulled into the wake of any Sino-U.S. antics.
At the same time, Trump has a tin ear about the trade profiles of Asian economies, often conflating China and Japan together as a combined job-stealing predator. In comments and tweets berating Beijing, Trump often tosses in: "And Japan, too!," for good measure. In January, he attacked Toyota directly for building a plant in Mexico (Toyota got an Aug. 4 Twitter shout-out for opening a $1.6 billion U.S. plant with Mazda). Who knows, though, what Trump will tweet next about Japan Inc., Abe's desire for a weaker yen or drawing Tokyo into some future brouhaha with either Beijing or Pyongyang.
The Trumpian moment Asia feared could be upon us, with the aluminum foil action being the first round of volley fire. Trump has threatened quotas and tariffs on Chinese steel. The White House could revive investigations into alleged intellectual property violations and other contentious areas. In July, U.S. Treasury Secretary Steven Mnuchin and Chinese peers came up short in talks on foreign-ownership rules in industries including financial services -- rules Trump is not happy about. Potential areas of discord abound.
The drama on the Korean peninsula pits two impulsive leaders against one another -- and Asian leaders caught in between, swapping tinfoil hats for crash helmets.
William Pesek is a Tokyo-based journalist and author of "Japanization: What the world can learn from Japan's lost decades." He is a former columnist for Bloomberg.