President Trump tweeted a message of support to America’s farmers, pledging to deliver another round of federal bailout money if China, Canada and Mexico fail to immediately satisfy their commitments under their respective trade agreements with the US.
The message arrived in all-caps:
IF OUR FORMALLY TARGETED FARMERS NEED ADDITIONAL AID UNTIL SUCH TIME AS THE TRADE DEALS WITH CHINA, MEXICO, CANADA AND OTHERS FULLY KICK IN, THAT AID WILL BE PROVIDED BY THE FEDERAL GOVERNMENT, PAID FOR OUT OF THE MASSIVE TARIFF MONEY COMING INTO THE USA!
— Donald J. Trump (@realDonaldTrump) February 21, 2020
Of course, as many (including us) have noted, American firms are the ones on the hook for the tariffs, and the revenue, while strong, would be nowhere near enough to offset another 11-figure bailout package.
Considering the tweet’s forgiving tone, it looks like this is another classic Trump trade triangulation (where Trump sets the China hawks and pro-trade doves against each other, then stakes out a more moderate path, often via twitter). As we noted earlier, a senior Treasury Department official reportedly told Reuters that the administration is unsympathetic to China’s coronavirus-related troubles, and that it expects Beijing to keep its promise to buy $200 billion in US goods (with a large slug of that slated for ag products) over the next two years.
In essence, this ‘senior official’ was telling Beijing: ‘fuck you, pay me’.
Now, it appears President Trump has decided to soften the message a bit, telling farmers that the federal government will be there to backstop them if China does eventually need a little more time to make good on its commitments, or if the economic blowback is so severe that Mexico and Canada are heavily impacted (which is possible, but then again if that happens Trump might have other problems).
So far, the Trump administration has promised farmers a total of $28 billion in two farm bailouts, with the rest of that money set to be paid by April. Now he’s saying he might do a third if the coronavirus fallout for the global economy is bad enough.
Here’s another thought: As we theorized in our last post, President Trump needs to keep the threat of a trade-deal collapse alive to maintain leverage over China and feed expectations that the Fed could deliver another rate hike if things go poorly, which is why a revival of the reflation trade is in reality the biggest threat to the market right now.
So the message was addressed to American farmers, but the subtext was intended for Beijing.
Interestingly enough, the market dropped after the tweet, a sign of just how sensitive investors are becoming to hints of virus-related economic blowback.