Trump protectionism poses big market risks: strategists

While the stock market has been on the up since the election of Donald J. Trump as president, his protectionist policies and U.S.-first views pose a serious threat to the market and overall economy, market strategists said Thursday morning.
Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., and Jonathan Golub, chief U.S. market strategist at RBC Capital Markets, expressed concern over Mr. Trump’s rhetoric over a trade war and the market risk associated with such a war.
Like in a military war, the notion some have that there’s a winner and a loser in a trade war is “misguided,” according to Ms. Sonders.
“There’s no win-lose,” Ms. Sonders said. A trade war with our closest international trading partners is like “aiming the gun squarely at our own economic foot.”
We would “like to see the rhetoric dialed down,” Ms. Sonders said of Mr. Trump’s statements on trade.
Mr. Golub, echoing that sentiment, said talk of protectionism is one of the “growth-negative” parts of Mr. Trump’s proposals.
Mr. Trump, for example, has suggested placing a 20% tax on imports from Mexico to fund construction of a wall on the U.S.-Mexico border.
A 20% tariff is “super regressive,” according to Mr. Golub, who along with Ms. Sonders spoke at the Investment Management Consultants Association’s Investment Advisor Forum in New York City.

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Such a policy decision would hurt low-income Americans, Mr. Golub said, providing the example of a domino effect whereby such a tax could lead to increased food costs, which may lead some to have difficulty paying rent, which then puts a financial stress on landlords, and so on.
“We have to be very, very careful” with any sort of border readjustment tax, because it could lead to “consequences we weren’t hoping for,” Mr. Golub said.
Referring to one of Mr. Trump’s promises as a presidential candidate, both Mr. Golub and Ms. Sonders expressed that rather than needing to fix the economy, a more important economic consideration is to maintain the world order.
“That matters so much more than anything else,” according to Mr. Golub.
“Are we overpaying for world defense? Yes. Are we better off for it? Yes,” he added.
Despite the risk Mr. Trump’s anti-globalization views poses to the economy, his push for corporate tax reform and regulatory reform is largely pro-growth, the panelists said.

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However, they expressed doubt that tax reform would occur quickly, saying it will likely be a more drawn out process than anticipated.
Mr. Golub also questioned whether tax reform will provide as big a boost to corporate earnings as some expect, saying that House Speaker Paul Ryan would likely look to have a rational tax plan that balances lower corporate taxes with a revenue generator from elsewhere, possibly individuals or foreigners.
If consumer demand somehow falls off as a result, the readjustment in spending patterns may dilute the positive impact of lower corporate taxes, he said.

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While the market has gone gangbusters following the result of the presidential election, talk of tax reform hasn’t been the most important driver of that growth, perhaps contrary to what some observers believe, panelists said.
Mr. Golub, for example, pointed to indicators such as a strong labor market, China’s increase in spending notching up the global GDP and interest rates beginning to increase.