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White House chief economic adviser Gary Cohn announced his resignation Tuesday. This comes on the heels of President Donald Trump’s proposed tariffs on steel and aluminum.
In a prepared statement, Cohn expressed his gratitude to the president for allowing him to serve his country. He alluded to some of the pro-growth economic policies that he helped pass and enact, including the “historic tax reform.” Cohn wished the Trump administration the best of luck in their future endeavors.
Trump reciprocated with his own statement, referring to Cohn as “a rare talent” and thanking him “for his dedicated service to the American people.”
Cohn was second-in-command at Goldman Sachs when Trump tapped him in December 2016. Many also believed that Cohn would be nominated as chairman of the Federal Reserve. The former Goldman president was one of the longest-serving prominent Trump White House officials.
The Rise of Tariffs and Peter Navarro
Now that Cohn, who was considered a moderate, level-headed official in the administration, has departed, there could be two major factors in economic policymaking moving forward: tariffs and Peter Navarro.
Last week, President Trump proposed implementing a 25% tariff on steel imports and a 10% levy on aluminum. He also stated that “trade wars are a good thing, and easy to win!” Reports say that the Wall Street-friendly Cohn was adamantly opposed to the idea, and he often clashed with Trump’s protectionist advisers.
During the president’s meeting with U.S. executives, Cohn warned about price increases for steel and aluminum products. According to Axios, Cohn went as far as arranging a meeting between Trump and businesses that utilize the materials in their products to deter him from establishing new tariffs. It was canceled.
MarketWatch Senior Economics Reporter, Greg Robb, reported that Peter Navarro, Trump’s top trade adviser, helped push Cohn out of the White House. Navarro is a strict protectionist and trade deficit hawk, and is considered to be “Ottawa’s worst nightmare.” He failed to garner influence at the beginning of his tenure in Washington, but has been a major power broker in recent weeks.
With Cohn stepping down as the National Economic Council director, Navarro’s brand of protectionism could likely begin its ascent. This could mean greater trade restrictions and perhaps the end of the North American Free Trade Agreement (NAFTA).
Financial Markets Reacting
Cohn’s former boss, Goldman Chief Executive Lloyd Blankfein, tweeted that he was “disappointed to see him leave.” And it appears that the market shares Blankfein’s sentiment.
Investors now fear that the administration will adopt a more protectionist stance that could initiate an international trade war. At the opening bell, the Dow Jones Industrial Average futures plunged more than 200 points. The S&P 500 shed 20 points, while the Nasdaq dipped 45 points.
All 30 members of the Dow were in the red even before the opening bell. Some of the more active movers and selloffs were Boeing (down 2.27%), Caterpillar (fell 2.2%), and Apple (dropped 0.9%).
Should the declines remain the same, then the Dow’s year-to-date gains will be eliminated.
The U.S. Dollar Index, meanwhile, advanced 0.14% to 89.57.
But there is a plethora of other important economic releases on Wednesday that may shift the market and pare those early losses.
The February ADP employment report, which found that the private sector added 235,000 jobs, was overshadowed by the Cohn resignation. The Commerce Department reported the trade deficit increased 5% in January to $56.6 billion, the highest level since October 2008. Fourth quarter productivity was flat, beating original estimates forecasts of a 0.1% decrease. The price of labor per single unit of output climbed at a 2.5% annualized pace.
Will traders buy the Cohn dip in the same way they sold the February panic?
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