On The Money — Presented by Wells Fargo — Trump at Davos warns Europe on trade | President boasts about US economy to global elite | Experts say Trump trade victories may yield little growth

Happy Tuesday and welcome back to On The Money, where we’re wondering how much space you need to plant 1 trillion trees. I’m Sylvan Lane, and here’s your nightly guide to everything affecting your bills, bank account and bottom line.

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THE BIG DEAL– Trump at Davos sends warning shot to Europe on trade: President Trump is leaning on the strong U.S. economy to project strength among the global elite as he gears up for a bruising reelection battle and a new round of tense trade negotiations with the European Union.

Trump delivered a stark warning to the World Economic Forum in Davos, Switzerland, that he will remain undeterred behind his “America First” agenda as the U.S. seeks more favorable trading terms with Europe. 

• The president stressed in his speech that the new year was a “time for optimism” and urged attendees to “reject the perennial prophets of doom and their predictions of the apocalypse.” Trump began the day taking a victory lap, touting recent trade victories, a strong stock market and a growing economy.
• But shortly after, he also floated grave economic consequences for Europe if trade talks between the U.S. and European Union collapse.

I explain here why Trump is barreling a conflict with the EU, what it could to the European economy, and why his past trade successes may not translate in Europe.

 

 

What Trump wants: After signing a preliminary trade deal with China and securing the U.S-Mexico-Canada Agreement (USMCA), the president is eager to claim another trade victory to tout on the campaign trail. 

• Trump is seeking a commitment from Europe to purchase vastly greater quantities of U.S. crops to boost the ailing American agriculture sector by lowering EU tariffs on foreign ag products.
• Trump is also seeking to bolster his image as the Senate began his impeachment trial earlier Tuesday, which could be politically damaging even if, as is expected, he is acquitted.

 

What Trump will do: Trump renewed his threat to impose tariffs on European automobiles if the U.S. and EU were unable to strike a trade deal. 

• Doing so could devastate the continent’s economy, according to experts, with Europe already teetering on the edge of recession.
• The remarks were seen as a sign Trump will not relent in his battle with the EU with a strong economy at his back and with a gauntlet of challenges between him and the 2020 election.

 

In a nutshell: “[Trump] thinks he is an absolute position of strength, so why would he treat the EU as an equal challenger or partner if he thinks that ultimately the U.S. is in the strongest position?” said Marie Kasperek, senior fellow at the Atlantic Council, a Washington, D.C., think tank.

 

More from Trump’s first day in Davos: 

• President Trump and French President Emmanuel Macron spoke about France’s digital tax on Monday reaching a truce under which France has agreed to postpone its tax until the end of the year, while the U.S. will postpone tariffs.
• On that note, Treasury Secretary Steven Mnuchin warned the United Kingdom and Italy that they will face tariffs if they move forward with digital taxes, The Wall Street Journal reported Tuesday. 
• President Trump also told the Journal that he will release a new tax-cut plan within 90 days, though it would need to pass the Democratic-controlled House to become law.

 

LEADING THE DAY–Breaking down Trump’s trade deals:

Trump claims trade victories with revised NAFTA, China deal: President Trump claimed victory on two fronts of his global trade war last week after securing a preliminary deal with China and a replacement for the North American Free Trade Agreement (NAFTA).

The Senate approved Trump’s NAFTA rewrite, dubbed the United States-Mexico-Canada Agreement (USMCA), by a resounding margin Thursday, one day after the president signed a “Phase One” trade deal with China’s Vice Premier Liu He. 

Trump celebrated the two deals as promises kept to his supporters less than a year before Election Day, each deal gives Trump an arsenal of big numbers to tout on the campaign trail, and even some of Trump’s fiercest critics backed his NAFTA reboot.

But trade experts say the deals may do more to boost the president’s reelection campaign than the U.S.’s trade relationships, particularly with China. I explain why here.

Read more: Four key parts of Trump’s China trade deal

 

Experts say Trump’s China deal touches all but the biggest issues: 

• Trump has touted his new deals as a crucial step toward stopping the bleeding of U.S. jobs, but the agreement with China does not address the forces driving the decline in U.S. manufacturing employment and Beijing’s open ambition to dominate the production of essential technology by 2025.
• The deal also doesn’t address China’s long-running practice of pouring subsidies into domestic companies to produce an oversupply of industrial materials, such as steel, to price out American competitors.
• “There are a long running series of challenges for the U.S. and China this deal doesn’t even scratch,” said Edward Alden, a senior fellow at the Council on Foreign Relations. “There’s a whole technology war going on alongside this trade war, and that is going to continue in force this next year and beyond, even as we have this trade truce.”

 

Economic impact of trade deals could be slight: Economists expect economic growth to slow in 2020 for the third year in a row and see only a minor bump, if any, from the trade deals.

“No one’s forecast has changed as a result of these arrangements,” said Mark Zandi, chief economist at Moody’s Analytics, who has advised several Democratic campaigns.

“They’re on the margins in terms of their macroeconomic impact,” he added, referring to the two trade deals. 

The Hill’s Niv Elis tells us why here.

 

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Conservatives hit back on 2020 wealth tax proposals: Conservative groups are hitting back on wealth tax proposals from progressive 2020 candidates like Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), as polls show broad support for the taxes.

Sanders and Warren have made higher taxes on multimillionaires and billionaires a key part of their respective plans to tackle inequality, but right-leaning groups argue that a wealth tax would be harmful for the overall economy and hurt more people than just the ultra-rich.

Those groups are now making the case that once voters learn more about the potential consequences of wealth taxes, public support will erode. The Hill’s Naomi Jagoda tells us more about their campaign here.

 

GOOD TO KNOW

• Economic growth in the United States will drop to 2 percent this year, down from 2.3 percent in 2019, as global growth spikes from 2.9 to 3.3 percent, according to new estimates from the International Monetary Fund (IMF).
• Huawei’s CEO on Tuesday said that his company was ready for any further “attacks” by the U.S. government and suggested that the divide would not split the world between two separate 5G systems.