WASHINGTON (Reuters Breakingviews) - Gary Cohn’s exit turns White House chaos into the markets’ problem. The ex-Goldman Sachs banker stood as a buffer against anti-trade voices in President Donald Trump’s administration – and is now leaving just as Trump ramps up protectionist talk. Markets have been phlegmatic about disorder in Washington. That can no longer be taken for granted.
The departure of the White House’s top economic advisor comes the week after Trump announced his administration would levy sweeping tariffs on steel and aluminum imports. Details of the plan are not yet clear, but the direction is. The decision to move forward with the tariffs – reportedly pushed by Commerce Secretary Wilbur Ross, presidential adviser Peter Navarro and others – was a blow to those in the administration hoping to steer Trump on a more moderate course. Cohn’s exit now threatens to accelerate the White House’s zero-sum trade agenda.
White House dysfunction and high-level turnover have been constant features of the Trump presidency – and markets have largely shrugged them off. This time might be different. The Mexican peso plunged shortly after news of Cohn’s resignation broke, as did stock futures.
Investors are right to worry. The White House has relatively wide latitude to do what it wants on tariffs, and Trump will soon face several key trade decisions. Talks to renegotiate the North American Free Trade Agreement are due to finish soon; those for the United States-Korea Free Trade Agreement are ongoing. The administration must also soon decide whether and how to implement Trump’s steel and aluminum tariff threats, as well as how to handle an ongoing regulatory investigation into China’s intellectual-property practices – either of which could threaten retaliation from trade partners.
In the immediate future, this makes the role of the U.S. Federal Reserve even more important. Investors will be looking to new chief Jerome Powell to provide a steady hand – say, by slowing the pace of rate hikes if trade tariffs result in American job losses - and reassurance that the United States remains the safest place to put their money. The U.S. economy is bigger than any one person, including the president himself, but it’s hard to overstate the value of a friendly face.
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