Aurelia Butler

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump is considering tariffs on countries that levy digital services taxes against American companies and tightening rules on Chinese investment in the US as he widens the scope of his global trade war.The president signed a memo on Friday ordering the US trade representative to look into reopening investigations begun during his first term into digital services taxes imposed by a host of EU countries as well as the UK and Turkey. It also assesses potential new probes into other countries including Canada.  “My administration will not allow American companies and workers and American economic and national security interests to be compromised by one-sided, anti-competitive policies and practices of foreign governments,” the president wrote in the memo. Since retaking office Trump has sought to reshape the country’s trading relationships with the world, threatening and executing a range of tariffs against various countries and sectors.He had already signalled digital services taxes would be in his sights as he looks to unshackle the nation’s Big Tech groups operating abroad and overhaul the global tax regime. Under the memo, Washington will look into taxes imposed by foreign governments on US companies and also any regulations or policies that “inhibit the growth” or “jeopardise [the] intellectual property” of American corporations operating abroad. The memo mentions digital service taxes in France and the UK, whose leaders are set to visit Washington for talks with the president in the coming days. “What they’re doing to us in other countries is terrible with digital,” Trump said on Friday ahead of the signing.The president also signed a memorandum aimed at boosting foreign investment into the country while protecting national security from China and other adversaries. It said the administration would create a “fast-track” process to enable investment from US allies and partners.The memo added that the Committee on Foreign Investment in the United States (Cfius), which vets inward-bound transactions for security risks, would be used to “restrict Chinese investments in strategic US sectors like technology, critical infrastructure, healthcare, agriculture, energy, raw materials, and others”. Former president Joe Biden ordered Cfius to take a tougher approach on China in a range of similar sectors, including technology.The White House said it would protect farmland and real estate near sensitive military facilities and would strengthen Cfius’s authority over “greenfield” investments, where companies build or expand new facilities and operations in a foreign country.It said the administration would consider new or expanded restrictions on American outbound investment to China in sensitive technologies, including chips, artificial intelligence, quantum and biotechnology, to prevent capital from being used to support China’s “military-civil fusion” strategy, which forces Chinese companies to share technology with the People’s Liberation Army. “We will also adopt new rules to stop US companies from pouring investments into China, and to stop China from buying up America, allowing all of those investments that clearly serve American interests,” Trump said in a statement.China’s commerce ministry criticised the Trump administration move as an “arbitrary expansion of national security” and indicated Beijing might retaliate.A ministry spokesperson said the proposals would “undermine the confidence of Chinese enterprises in investing in the US” and called any further restrictions on investing in China “highly unreasonable”. Additional reporting by Steff Chávez in Washington and Ryan McMorrow in Beijing More

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldWill the latest iteration of the Trump administration’s supercharged “flood the zone with sh*t” strategy be a global macroeconomic mega-deal — an agreement that outdoes even the famous 1985 Plaza Accord in ambition?That was a deal between the US and its major trading partners struck at the Plaza Hotel (of Home Alone 2: Lost in New York fame) to engineer a dollar devaluation, after Fed chair Paul Volcker’s war on inflation had sent the greenback soaring. It was a notable success, in an era of damp-squib international agreements. Donald Trump (also of Home Alone 2: Lost in New York fame) already demonstrated an affinity for economic history by purchasing the Plaza Hotel in 1988 (the deal ended up in bankruptcy). He really wants a weaker dollar. Conveniently, he also owns the Mar-a-Lago resort in Florida, which might be a profitable good venue for a new accord.Versions of the “Mar-a-Lago Accord” idea have therefore been floating around ever since the first Trump presidency. His victory in November naturally led them to resurface. Alphaville mentioned the possibility in our how-to-devalue-the-dollar guide the day after the 2024 election. The chatter then died down, but has now apparently come back on the news agenda. Most of the basic contours of the supposed plan seem to be derived from this November 2024 paper by Stephen Miran. Miran is currently a senior strategist at Hudson Bay Capital, but he served a stint in the US Treasury during the first Trump administration, and is now Trump’s nominee for chair of the Council of Economic Advisors. And you can’t fault his ambition: The next Trump term presents potential for sweeping change in the international economic system and possible accompanying volatility. It is important for investors to understand the tools that might be employed for such purposes, as well as the means by which government may attempt to avoid unwelcome consequences. This essay attempts to provide a user’s guide: a survey of some tools, their economic and market consequences, and steps that can be taken to mitigate unwanted side effects. Wall Street consensus that an Administration has no means by which to affect the foreign exchange value of the dollar, should it desire to do so, is wrong. Government has many means of doing so, both multilaterally and unilaterally. No matter what approach it takes, however, attention must be paid to steps to minimise volatility. Assistance from trading partners or the Federal Reserve can be helpful in doing so. In any case, because President Trump has shown tariffs are a means by which he can successfully extract negotiating leverage — and revenue — from trading partners, it is quite likely that tariffs are used prior to any currency tools. Because tariffs are USD-positive, it will be important for investors to understand the sequencing of reforms to the international trading system. The dollar is likely to strengthen before it reverses, if it does so. There is a path by which the Trump Administration can reconfigure the global trading and financial systems to America’s benefit, but it is narrow, and will require careful planning, precise execution, and attention to steps to minimise adverse consequences.It is tempting to discount the whole thing, as this is a ~cough~ freewheeling administration with a multitude of hangers-on throwing policy proposals around like confetti. Some aspects — such as forcing countries to swap their Treasuries for century bonds — seem a bit fantastical. It’s essentially a glorified protection racket scheme with some lipstick. Even Miran noted that restructuring the global financial system will require “careful planning, precise execution and attention to steps to minimise adverse consequences”. And, let’s face it, these aren’t qualities that the first or (thus far) second Trump administrations have demonstrated a lot of. Moreover, the world is a radically different place today than it was back when the original Plaza Accord was struck in 1985. Mark Sobel, a former US Treasury grandee, wrote in December that a Mar-a-Lago Accord was “far-fetched and implausible”. However, the chatter can’t be ignored completely. The Trump administration has clearly shown a remarkable willingness to slap tariffs on friends and eject them from its security blanket. China has its own struggles right now. Some countries might therefore be willing to swallow some sort of Mar-a-Lago Accord to avoid the drama. As Stephen Jen of Eurizon SLJ wrote last month:We agree that the conditions are not ripe now for a Mar-a-Lago Accord, but the circumstances could change in 2-3 quarters’ time. Also, our sense is that Beijing’s aversion to participating in such a co-ordinated effort to drive down the dollar may not be as strong as before, especially when threatened with punitive tariffs.  John Connally — US Treasury Secretary in 1971 — famously said, ‘The dollar is our currency, but it is your problem.’ While this quote is still valid, the Plaza Accord in 1985 was an episode where other stakeholders participated to right a wrong in the dollar’s value. The interventions in 2000 to purchase euros was a similar agreement, which also addressed a stark imbalance in currency markets.  Given how mispriced the dollar is now, we believe the probability of a Mar-a-Lago Accord will rise in the coming quarters. More

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