28th November 2016

Borrower Briefing Borrower Briefing - Trump Special Will no-one rid me of this troublesome Trump? It would appear not. But the likely appointment of Wilbur Ross as Secretary of Commerce might bring some direction to the bluster of Trumpenomics. Wilbur Ross, chairman and chief strategist of private equity firm W.L. Ross & Co and prior to that head of Rothschild's bankruptcy practice for 25 years, looks set to become Secretary of Commerce under the Trump administration. A billionaire in his own right, Ross made his fortune restructuring distressed assets, his most notable deal being the combining of bankrupt steel producers Bethlehem Steel, Acme Steel, Weirton Steel and LTV Steel to form International Steel Group in 2002, which was then absorbed into Mittal Steel in the same year. For global trade, the appointment (although as yet unconfirmed) is potentially good news. Ross is both a diplomat (he has a good track record of getting unions onside during restructurings) and pragmatist. He made it clear during Trump’s campaigning that the maths did not work on the president elect’s pledge to wipe out $19 trillion of US debt in two terms. And he has voiced none of the xenophobic rhetoric of some of Trump’s other prospective appointees. Like Trump, Ross is a dealmaker. Unlike Trump, he also appears to be able to see the bigger picture. As he said in a recent interview with CNBC: “When we're looking at an opportunity, first of all we look at it on an industry basis, because we've learned over the years that when companies go bad, they generally go bad as a whole industry…This creates two sets of opportunities, one is to fix the individual company, and second is the potential for changing the dynamics of the whole industry. If you can do both, then you get two big increments to value. So that's what we really try to shoot for.” For the full interview click here. But the prospective appointment of Ross is one of very few global trade upsides in the Trump administration. Trump has also named two steel industry protectionists - Dan DiMicco and Robert Lighthizer - to the Office of the United States Trade Representative (USTR). With their appointments comes the likelihood of trade disputes – not least with China over steel dumping. Relations with China, and to a lesser extent Asia, are already on a downward spiral. Trump has killed TPP with one sentence – bad for markets like Japan where TPP was seen as a buffer against growing Chinese trade domination across Asia. And his proposed 45% trade tariff on US imports from China has prompted the Chinese government to announce it will protect its rights under WTO rules, which prohibit members from unilaterally raising tariffs above levels that they have committed to maintain. So is a trade war brewing? Yes. Last week, China’s state-run Global Times newspaper warned that a 45% Trump tariff would paralyse US-China bilateral trade. “China will take a tit-for-tat approach. A batch of Boeing orders will be replaced by Airbus. US auto and [Apple] iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted,” the newspaper claimed, in what can only have been a state-sanctioned statement.

Could China replace the US as a driver of global trade? No – China is an exporter and not an importer. According to the IMF China’s share of global gross domestic product jumped from 4% in 2000 to 15% in 2016, but its share in global imports was only 12% in 2015, while that of Asia was 36%, and the US and EU (excluding intra-EU trade) accounted for 31% of world imports. In short, without the US, the world becomes a much smaller market for exporters. The fallout from protectionism – and it is not unique to the US, it has already started with the UK’s Brexit –will be a return to costly bilateral trade agreements across the globe. That will put the overall costs of trading up, the brakes on growth and waste a pile of cash on lawyers. For the trade finance market, any slowing in trade volume is always going to be bad news. But for trade borrowe