Stock markets in Europe and the United States are markedly turning south, although they’re not headed for a crash, at least for the moment. Is this the beginning of a long journey to Hell or just a temporary bump? It’s a little too early to tell, but we’d like to challenge the main consensus that attributes the stock market decline in great part to “Trump’s trade war”, so we can understand what is happening.

Since the French, European and American media are systematically anti-Trump, they don’t help in clearing things up, so let’s try to do just that: Donald Trump is not a protectionist – he is for free trade, an American tradition, but he doesn’t want the United States to get the short end of the stick. The United States is facing a gigantic $800 billion a year trade deficit, the equivalent of 4.2% of its GDP (France, Europe’s worst, is at 2.5%). Five countries (China, Mexico, Japan, Germany and South Korea) account for 80% of this deficit, with China responsible for almost half of it. 

“They’re not playing fairly”, says the American president, and when we look at the facts, we can see he’s right: The average customs duty is 13.9% in South Korea, 13.5% in Brazil, 13.4% in India and 9.9% in China, while it is 5.2% in the European Union, 4% in Japan, and only 3.5% in the United States (WTO data). And the European Union uses a sort of targeted protectionism: It imposes tariffs of 11.1% on all agricultural imports, while the United States charges 5.2%; American cars are taxed 10%, while imported cars are taxed 2.5% in the States. 

Trump is taking aim specifically at China: he is denouncing its unfair trade practices, especially the theft of intellectual property, forced transfer of technology, industrial subsidies, distortions caused by state-owned enterprises, etc. Who can blame him? Instead of denouncing an improbable “trade war”, the European Union should join the American president in his crusade, because it has an enormous trade deficit with China as well. 

This “trade war” exists only in the newspapers. The United States’ economy is doing fine, growth hasn’t been this strong under the two previous Obama administrations, and even if very high debt levels are menacing on both sides of the Atlantic, Europe is the side to be worried about. We had invoked this scenario early this year: Could the next financial crisis arise from Europe... Not from the USA? There’s a lot to be worried about with the Italian banking sector and Deutsche Bank, notably (Charles Gave also thinks so). 

A crisis also happens when the risks are not clearly identified, and it seems this is the case now. Let’s stop worrying about the supposed trade war of Donald Trump, who is doing a fine job, and let’s wait for the mid-terms elections on November 6 to see how the Americans see it. And investors are probably doing just that, waiting, which would explain this momentary decline on the US markets. But instead I think we should worry about our own European banking sector...

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