August 22, 2018 / 7:56 PM / a month ago

Breakingviews - Smug markets underestimate Trump volatility risk

WASHINGTON (Reuters Breakingviews) - Smug markets are underestimating Donald Trump’s volatility risk at their peril. The U.S. president renewed his auto-tariff threat after a former campaign chief was convicted of tax fraud and his ex-lawyer implicated him in election-finance abuses as part of a guilty plea. Duties on $500 billion in Chinese imports also loom.

U.S. President Donald Trump listens to a question during an interview with Reuters in the Oval Office of the White House in Washington, U.S. August 20, 2018. REUTERS/Leah Millis

Tuesday’s dual court proceedings marked a significant escalation in the legal and political pressure on the president. Former personal lawyer Michael Cohen said “a candidate” directed him to pay off two women to stop them from speaking publicly during the 2016 presidential campaign about affairs with Trump. Cohen pleaded guilty to campaign-finance violations, among other charges.

Cohen’s lawyer also said his client is ready to assist special counsel Robert Mueller, who is investigating Russian meddling in the 2016 campaign. As part of that probe, a jury on Tuesday found former Trump campaign manager Paul Manafort guilty on eight counts of tax and bank fraud. The charges were related to his work on Ukraine’s election in 2010.

Trump didn’t mention the cases at a rally Tuesday night, but he renewed his pledge to impose a 25 percent tax on car imports, though such duties are supposed to be on hold pending trade negotiations. An auto-industry group said the levy would increase the cost of a new, imported vehicle by $6,000 and an American-made vehicle by $2,000.

Out of anger, a need to distract, or both, Trump could also follow through on his July threat to impose tariffs on all $500 billion in Chinese imports. By Thursday, the U.S. government will have imposed duties on $50 billion in Chinese goods, while hearings are being held this week on proposed levies on another $200 billion tranche.

Markets so far appear to be shrugging off the economic risk. The S&P 500 Index, the Dow and Nasdaq were down marginally Wednesday morning while the dollar and U.S. Treasuries firmed slightly. The U.S. economy is healthy but other shoes could drop. Former Trump national-security adviser Michael Flynn is cooperating with the Mueller probe.

The Cohen admission also bolsters the Democrats’ case for impeachment should the party win the House of Representatives in November elections. Firing Mueller or pardoning Manafort could also spark a backlash. A cornered Trump puts economic good times at risk.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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