Metal tariffs could spur China to bust bonds

PRESIDENT Trump’s views on trade wars have never been a secret.

I know firsthand because I asked candidate Trump about trade during an interview right before he was officially nominated for president by the Republicans.

Trump, in a conference room at his New York office tower, basically shrugged off my concerns.

He had it under control, he said. I didn’t think he grasped the whole issue and I still don’t.

That’s pretty much the same attitude Trump took in a tweet he sent out last week when the stock market bubble was deflating — partly because the president was about to start a trade war over steel and aluminum imports.

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump tweeted Friday morning.

So why does the stock market care now about Trump’s attitude on trade when it hasn’t for the past 18 months? Trump hasn’t changed. So something must be different in the financial markets.

The fact is that the US is taking a beating on trade. It has been for decades and if Trump can solve the problem, that’ll be great. I’m rooting for him. But “easy to win” is the kind of misjudgment that could get the US into serious trouble.

I know you want an answer to what’s different now, but I really don’t have one, except this: Sometimes the stock market gets into a drunken stupor and — like an inebriated person — ignores all the dangers in front of it.

Stocks have been drunk on the promise of tax cuts since Trump won the election. They may now be sobering up. Commerce Secretary Wilbur

Ross stuck with the party line. He called the tariffs that are supposed to be announced this week — if Congress doesn’t cut them off — “no big deal.” Ross said the taxes on imported goods will have a “broad” but “trivial” impact on prices in the US.

I hope Ross is right.

But just in case he isn’t, let me go through the dangers of a trade war — and they don’t all have to do with trade.

Prices of steel, aluminum and the products they go into will rise. By how much is anyone’s guess.

And countries like China, the target of the steel tariffs, will retaliate with import taxes of their own on US goods. So some of our country’s biggest technology, food service and aerospace companies will get hurt.

But that might not be the biggest problem. China’s ownership of American bonds is.

I’ve said this many times before, but now the problem is in play. China has $1.18 trillion invested in US bonds. And if China wants to disrupt the US economy by making interest rates rise, all it has to do is to loudly proclaim that it will not only stop buying Washington’s bonds but also start selling the ones it already owns.

The truth is that the Chinese are already sellers, but they’ve been doing it quietly. If they turn up the volume, our rates will rise, our economy will slow and Washington’s ability to fix a lot of our economic problems becomes more difficult.

But the Chinese will only be hurting themselves if they take action that causes US bond prices to drop and rates to rise, according to those who don’t see this scenario happening. True, but if there is a bigger agenda for the Chinese, they will take the financial hit to teach Washington a lesson.

That’s why Trump’s trade war really isn’t as benign as he would have you believe.

And there’s this one other thing. When President George W. Bush put tariffs on steel back in 2002, the stock market declined by 30 percent.

True, the economy was weak back then because of the terrorist attacks but, put into perspective, that sort of decline today would mean a tumble of almost 11,000 points on the Dow Jones industrial average.

And Bush wasn’t dealing with the China issue that I just mentioned.

The stock market rallied nicely on Monday when opposition to Trump’s tariff came from Congress. But you can be sure that the president isn’t finished lobbying yet.

Everyone knows President Trump fancies himself as a great negotiator.

So let me tell you a quick story about the first time I met the guy in person. I was working on a column called “Deals” for The New York Times, probably in 1988. I needed to get it done quickly, so I called Trump and asked for an interview.

I wanted to document how he put deals together. (I’m guessing this gave him the inspiration for a book he would later do titled “The Art of the Deal.”)

When I went to Trump’s office, he was haranguing someone on the phone over a parking garage that was being built for the Trump Taj Mahal that would open in 1990.

Trump was acting real tough with whoever was on the other end of the call. He kept motioning to me that it would only be another minute. After about five, he finished the call and turned his attention back to me.

I didn’t put it in that column that I was suspicious that there was no one on the other end of that call. I always wondered whether Trump was just playacting for my benefit. I must say that phone call, a prop or not, did make the column better.

Was that the day Trump the actor was born?