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23rd of July 2018


Trump’s right on trade — Europe has been ‘free-riding for too long,’ fund manager says

Donald Trump’s tariffs, rhetoric and presentation on trade are all wrong, one fund manager told CNBC on Wednesday, but the president’s take on global trade imbalances is right.

“I actually think he’s (Trump’s) right on the big picture on trade,” Eric Lonergan, macro fund manager at M&G, said.

“I think the key thing about Trump is not the specifics about tariffs, it’s actually about global imbalances and on that point he’s right. I think the true agenda here is a much, much bigger picture one. I don’t think it’s about the detail of specific tariffs or behaviors of specific companies,” he said on CNBC’s “Squawk Box Europe.”

“The real message here — and I think he’s right about this, but it’s hidden in the presentation and sound and fury — is fundamentally European macro-economic policy… is that Europe is free-riding global demand, running huge trade surpluses and nobody has really stood up credibly to that ideology until Trump.”

Trade relations between the U.S. and some of its biggest trading partners — Europe, China, Canada and Mexico — are at rock bottom several months after Trump first threatened to slap import tariffs on steel and aluminum imports after alleging trade abuses.

Relations have deteriorated since, while the amount and extent of threatened sanctions, and targeted sectors, has increased. The clock is ticking down to Friday when $34 billion worth of U.S. tariffs on China and the same amount of counter duties are set to kick in.

The European Union (EU), which had a trade surplus of 120 billion euros ($139.6 billion) with the U.S. in 2017, has not been exempted from Trump’s trade wrath, borne out of what he sees as unfair trade practices that he says have damaged U.S. jobs and companies. Given that the EU notes that the most exported product from the EU to the U.S. is cars, Trump has threatened to target these imports with a 20 percent tariff.

Nonetheless, Lonergan said it was ironic that Trump had been criticized by the “commentariat” on the details of trade tariffs, but that his wider aim to address global trade imbalances was being overlooked with too much focus on the headline-grabbing tariff threats and trade war fears.

“Look, I do not like all these tariffs, I do not like trade wars, I do not like the presentation of Trump. But when it comes down to the fundamental point of saying to policymakers in Europe, ‘Look at what you’re doing and this is not sustainable and look what happened the last time we had these imbalances,’ there is actually a fundamental point here,” Lonergan said.

He added that Europe was dominated by economies enjoying a trade surplus and had been able to take advantage of consumption in the States.

“What has happened post-euro crisis is that Europe is free-riding, it’s saying we’re going to run massive trade surpluses — Italy’s running a current account surplus now; peripheral Europe is; central and eastern Europe, which were deficit countries pre-crisis are now big surplus countries… We’re only able to run those surpluses thanks to the generosity and kindness of strangers who are willing to take in all of those goods.

“It’s a lie to say this is an amazing German export achievement — no, it isn’t, it’s because there is a consumer at the other end who’s willing to generate the demand.”

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