Former US President Richard Nixon showed his disdain for the niceties of international monetary affairs in recorded conversations that later became public in the Watergate tapes. Thanks to Donald Trump’s predilection for hot-tempered press conferences and off-the-cuff social media messages, we are likely to find out far more quickly about the current president’s views on financial flashpoints.
On 23 June 1972, Nixon – in the conversation authorising the cover-up of the Republican’s break-in at the Watergate hotel – told his staff, ‘I don’t care’ about the just-enacted floating of sterling. Informed about the plight of the Italian currency, he added, ‘I don’t give a shit about the lira.’
Here are six international points on a White House watchlist where Trump might be tempted to broadcast inflammatory opinions that could affect financial markets. Whether or not you agree with him, or indeed whether or not his comments are accurate, those following the fluctuations of currencies or interest rates will not be able to ignore threats from Trump’s tweeting turbulence.
GERMANY Confirmation that the country’s current account surplus last year was 9% of GDP – and is unlikely to decline significantly – could provoke a personal tirade, strengthening remarks against Berlin already made by Peter Navarro, head of the US national trade council. Trump could aim at Germany’s near-$50bn trade surplus with the US. Depending on the vehemence, a direct Trump assault could depress the euro – making German exporters still more competitive.
QUANTITATIVE EASING Trump said during the campaign that the Federal Reserve was keeping money loose to ease the Democrats’ chances. Now that he is in office (with the chance to reshape the Fed board with three to five new appointments in the next 18 months) Trump will want lower not higher interest rates – in the US, not Europe. He may lash out at the European Central Bank’s efforts to keep the euro lower through large-scale European QE.
GREECE European and non-European governments on the International Monetary Fund’s board are unprecedentedly split over Fund participation in the next stage of the Greek bail-out. Athens must repay $7bn in July, mostly to the ECB. The Germans cannot get parliamentary approval for their share without IMF help, but this requires Germany and others to reschedule Greek debts. Trump could press Germany and other Europeans to either soften terms on or become stricter with Greece. Each scenario could provoke fall-out in Berlin.
FRANCE Trump could take advantage of the French April-May presidential elections and the parliamentary vote in their aftermath. Any shift to the political right might elicit a comment that ‘this is all the fault of refugees’. And any electoral favouring of leftist candidates – such as Emmanuel Macron, the probable victor in May – may trigger a response that Europe is swinging to socialism. Marine Le Pen, the populist National Front leader, has suggested abandoning the euro and reinstating the French franc. If Trump comes out in open agreement, it’s more likely to happen.
ITALY The Italian government has cleverly benefited from the limited capacity of the German government or European Commission to stir undue controversy over a bending of the rules by the most consistently difficult member of the euro bloc. So Rome has engineered a much-needed recapitalisation for Italian banks. Any freshly rescued Italian bank that gains clear-cut competitive advantage over US institutions should be vigilant. Trump could become hostile. The result would be further instability.
CHINA Trump has called for protectionism against China to curb allegedly unfair mercantilist practices and the Sino-American trade surplus. Further disobliging comments should be expected on any additional devaluation of the renminbi. The danger would come from a Trump statement that countries in Europe with large current account surpluses – Germany, Switzerland and the Netherlands – are the true currency manipulators. If Trump spread his invective to others in Asia, such as Singapore, the trans-Pacific debate would escalate rapidly.
David Marsh is Managing Director at OMFIF.