Trump’s Confusing & Chaotic Game Of Chicken

medium120257876The only bit going per Donald J Trump’s (DJT) advertised script is the roller coaster — the worst-case scenario. His economic curveballs, clearly political, have made markets look for meaning on a moment-by-moment basis. A full-blown trade war has erupted, primarily between US and China. After successive tariff punches, there was a fleeting defensive screen, with US first suspending new tariffs ex-China for 90 days, then rolling back tariffs on some products that have a large share in China’s exports to America.Beijing on Sunday asked DJT to “cancel all reciprocal tariffs”. But DJT had taken a new turn. Washington announced all that he’d just exempted would remain out of “reciprocal tariffs”, but would all be included in a new umbrella semiconductor tariff coming “in a month or two”.Markets have reflected the general confusion. Dollar is down against most currencies, when it should have been up, given competitive depreciation is one counter exporting countries have to tariffs. US treasury yields are up, when benign US inflation and expected economic weakness should have bid yields down. Equity markets reflect headless chickens, spasmodically reacting to “news” from unverified X accounts.Blink first and lose | The most hopeful analysis of what’s going on can be found in the James Dean classic, Rebel Without a Cause. The movie’s about two teenage boys deciding to settle a dispute (about a teenage girl) via a car duel. They drive their cars towards a cliff, whoever jumps out first is deemed a “chicken”, hence inferior. Jump too late and you go down the cliff with the car!DJT has started Chicken Game simuls — simultaneous games in chess lexicon — on tariffs with 150 countries where each country is unsure of how the other 149 will react. For now, optically at least, US has turned “chicken” vis-à-vis China after the tariff rollbacks and promise of more tariffs, raising doubt among others who were ready to turn chicken themselves.Clinton aide James Carville once said, “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.” He was right. DJT’s tariff flip-flops are likely driven by incessant hardening of US treasury yields. But when the previous battle plan (of en masse tariffs) didn’t survive first contact with the enemy, what are the chances of a new one going as planned?Predictions are pointless | Sunday’s new flip-flop made that even more obvious. Whatever the rationale — middle America’s pique at a wholesale loss of semi-skilled jobs or a deeper psychological conviction about national decline — US is withdrawing its underwriting of global economic commons. The issue is, it isn’t doing so gradually with allies on its side, but by throwing in a massive poker gauntlet to 150 countries. In the short run, the only honest reaction to such a scenario is — “I don’t know”, which is what capital markets are reflecting, showing up the absurd certitude of some of the commentariat.India can’t bet on gains | In the 20th century, India’s unique set of challenges made it tough to consider “paired trades” of swapping US market access for political allegiance. Today, DJT is interested more in straight swaps. Reciprocal tariffs, even on allies, are illustrative of this.For a larger, richer India, this is an easier trade. Buying more oil from US is a cheaper option than militarising the Quad. Tariff concessions on Harley Davidson bikes trump joining western sanctions on Russia. Between energy and defence, India has multiple levers to balance its trade with US. Above all, India is an ideal ally in the Trump-ian imagination — no aid, no dependence on US military for security.But when there is a hot trade war between the world’s two largest economies, no economy is immune. The most heroic assumptions are around how India will be a natural beneficiary of the Sino-US trade war. It assumes China has no agency, it will simply roll over and let India take its cake. What if China, with its large industrial capacity reeling under US tariffs, starts dumping goods across the world, including India? What if China devalues its currency, as it has already given some indications it will? The answer, yet again, is we really don’t know. Not yet anyway.Investors, don’t panic | Between fear (of the unknown) and greed (based on experience), it’s tough for investors. When the most honest insight is “we don’t know”, it’s not even practical to make large discretionary calls. Precisely why the highest success probability strategy is to take decisions out of human hands. Don’t commit, don’t withdraw, but let a pre-decided cadence, via systematic regular investments, continue.Govt, seize the day | Govt, on the other hand, has to don a trader’s mantle. Winners in an uncertain world searching for a new modus vivendi will be those who can move swiftly and make deals. India has been a trading nation for millennia, it is time for the govt to bring out that avatar — it’s our moment to lose.The writer is CIO of a wealth management firm. Views are personal