Gary Cohn, chief economic advisor to President Trump, has resigned. Picture / Getty Images
Gary Cohn, chief economic advisor to President Trump, has resigned. Picture / Getty Images
Hope that US President Donald Trump will back down from policies that could start a trade war has faded with the resignation of Gary Cohn, the White House economic advisor most opposed to his tariff plan.
Cohn, the director of the National Economic Council, had been the leading internal opponent to Trump's planned tariffs on imports of steel and aluminium of 25 per cent and 10 per cent respectively.
News of his departure caused the US dollar to fall and quickly killed off a two-day rally on equity markets.
Australia's S&P/ASX200 index, with its heavy weighting of metals mining companies, dropped almost half a per cent on the news.
New Zealand's NZX index reversed early gains, eventually closing down 0.5 per cent at 8,284.34.
Japan's Nikkei 225 was trading down 0.5 per cent to 21,314.49, while South Korea's Kospi was up 0.1 per cent to 2,414.58. Hong Kong's Hang Seng index fell 0.4 per cent to 30,403.04 while the Shanghai Composite Index added 0.1 per cent to 3,294.66. Australia's S&P/ASX 200 sank 1.1 per cent to 5,898.80.
Markets rose Monday and Tuesday on optimism that Trump might be dissuaded from implementing tariffs that even his own Republican party has publically opposed.
But today, Trump reiterated that he will be imposing the tariffs, saying the policy would be administered in "a loving way" and the world would come to "like us better".
Bloomberg news reported sources saying that the steel tariffs were just the start with the Whitehouse "considering clamping down on Chinese investments in the US and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property".
Local trade experts have warned that New Zealand's export-led economy is at risk, even though direct sales of aluminium and steel to the US are only worth about $60 million.
There are concerns that a trade war involving the US, China and the EU could quickly escalate and spill over into agricultural products.
Hope that US President Donald Trump will back down from policies that could start a trade war has faded. Picture / Getty Images
Westpac senior economist Anne Boniface warned that if "the US were to impose similar tariffs on dairy imports or agricultural imports more broadly, it would have a big impact on the agricultural sector."
While the risk of that looked low in the near-term there was "no doubt that the growing protectionist sentiment evident not only in the US but also in other parts of the world (the UK's vote in favour of Brexit is another example), signal an uncertain and challenging environment for New Zealand exporters".
Other trade experts have warned of the secondary risks if a trade war hits the economies of our major trading partners and dampens global demand.
New Zealand International Business Forum executive director Stephen Jacobi said he believed the big issue was the extent to which the US could undermine the World Trade Organisation (WTO) dispute resolution processes.
Even our numerous free-trade agreements, such as the China FTA and the CTPP, relied on the WTO to resolve disputes.
So while those agreements might be expected to buy New Zealand some respite from a trade war, they could be undermined by the US actions.
At the weekend the European Union indicated it would retaliate to new tariffs with its own levies on US goods like bourbon, jeans and Harley Davidson motorcycles.
Hopes to soften the Trump policy now rest with Republican representatives in Congress.
Republican House Speaker Paul Ryan has published his strong opposition to the tariffs proposal.
However, as the President currently has executive powers over trade policy, the Republican Party would effectively need to go to war with the White House by passing a new law to revoke those powers.
In a statement, Cohn said it was his honor to serve in the administration and "enact pro-growth economic policies to benefit the American people".
Trump praised Cohn despite the disagreement, saying Cohn has "served his country with great distinction".
