Among the morsels of information the market needs to digest in 2017 are the impact of a Donald Trump presidency on U.S. trade policy, and what Brexit could mean to free trade in Europe.

To help us navigate such geopolitical situations, we borrow from game theory. As part of that geopolitical analysis, we’re assessing the key players’ potential actions—such as bluffs and power plays—to try to better understand potential outcomes.

It’s just like playing poker—there’s bluffing and power plays. It’s part of the game. It’s part of the negotiating process. For example, Trump meeting with Taiwan before he became president and doing it without notifying China first was a clear power play.

It’s just like playing poker—there’s bluffing and power plays. It’s part of the game. It’s part of the negotiating process.

With respect to U.S. trade policies, Trump has put forward a seven-point plan:

  1. Withdraw from the Trans-Pacific Partnership (TPP)
  2. Appoint tough and smart trade negotiators
  3. Direct the Secretary of Commerce to identify every violation of a trade agreement and then pursue that violation
  4. Renegotiate the North American Free Trade Agreement (NAFTA)
  5. Appoint and instruct the Treasury secretary to label China a currency manipulator
  6. Appoint a U.S. trade representative to bring trade cases against China
  7. Use every lawful presidential power to remedy trade disputes if China does not stop its illegal activities

These are aggressive statements. But that’s what you would expect from a negotiation—aggressive statements being put forward.

While the TPP was not yet approved, his recent executive order formally withdrew the United States from the trade deal. But many of these other actions, he simply can’t do. For example, he has said he would withdraw from the World Trade Organization (WTO), but that requires both the House and Senate to approve a joint resolution, which is unlikely. He can say he will pull out of NAFTA, but the problem is that each of the parties in NAFTA—Mexico, U.S., and Canada—must approve any change. That’s going to be a difficult process. Our Congress doesn’t completely side with Trump on this issue and I doubt Mexico and Canada will jump on board.

The key is he put a lot of things forward. It creates uncertainty for trade and we don’t know how far he’ll push the actual negotiations, especially with respect to China. This uncertainty will need to be considered when building a portfolio.

When we turn our sights to Europe, the United Kingdom still needs to invoke Article 50 to start the process of exiting the European Union (EU) and then there’s a two-year window for Brexit negotiations. In the end, we believe the resulting agreements will be bilateral in nature. It’s not in the EU’s interest to beat up on the U.K. and risk potentially driving other countries out of the EU.

The EU doesn’t want to be too aggressive in this negotiation, and they know they would be hurt if these trade agreements fall apart. Yes, there will be a lot of bluffing and power plays along the way.

 

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Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

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Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

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Copyright © 2017 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

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Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling +1 800 742 7272. Read it carefully before you invest or send money. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This material is provided for informational purposes only and is not intended as investment advice or a recommendation to buy or sell a particular security. Any investment or strategy mentioned herein may not be suitable for every investor.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2017 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

Statement of Financial Condition | NMS Rule 605 & 606 | Business Continuity Plan | UK Stewardship Code
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