World Economy

Trump's approval ratings may hold clues to where US trade disputes are heading

Key Points
  • The Trump administration has surprised markets when it comes to trade disputes and tariff announcements. 
  • Analysts are looking at metrics, including approval ratings for U.S. President Donald Trump and stock market performance, as indicators for whether or not trade tensions will ease. 
President Donald Trump
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From the tariffs on steel and aluminum imports in March to July's list of $200 billion in Chinese goods that may be targeted by new American levies, the U.S. administration's trade policies have repeatedly caught markets off guard.

The U.S.-China trade war continues to simmer and the White House is trading tariff threats with other nations, so analysts are now looking beyond government pronouncements for alternative indicators that may clue them into where exactly America's ongoing disputes are headed.

Approval ratings

U.S. President Donald Trump's trade offensive against Beijing coincided with a drop in his disapproval ratings, Nomura Head of Emerging Market Economics Rob Subbaraman and analyst Michael Loo wrote in a recent note.

"Perhaps President Trump's efforts to deliver on some of his harsher campaign rhetoric on trade are starting to shore up his core support base. Moreover, the data are in his favor: The U.S. trade deficit with China has increased over most of his presidency," the Nomura analysts wrote.

"Whether there is causality between Trump’s growing trade protectionism and his lower disapproval rating is unclear, but if he believes there is and continues to up the ante against China, the global economy will likely suffer," they added, referring to the decline in Trump's disapproval rating from 56 percent in December to the roughly 53 percent current figure, according to data analysis website FiveThirtyEight.

If, however, Trump's polling numbers suffer on any trade-linked issues, then that may mean the White House will take a more moderate approach with Beijing, according to Jasslyn Yeo, global market strategist at J.P. Morgan Asset Management.

Stock market

Aside from ratings, another indicator investors should watch for an easing in trade tensions is if the sees a "significant correction induced by trade fears," Yeo told CNBC.

The president has in the past linked his policies to stock market performance, having attributed stocks' record highs to confidence in his administration.

U.S. President Donald Trump tweet: The Stock Market hit 25,000 yesterday. Jobs are at an all time record - and that is before we fix some of the worst trade deals and conditions ever seen by any government. It is all happening!

Trump has previously "shown sensitivity to the stock market," said Erik Ristuben, global chief investment strategist at Russell Investments. He added that a 10 percent correction in the market, if linked to a decline in consumer or CEO confidence, would capture the administration's attention.

Bearing in mind the upcoming November U.S. midterm elections, Trump's "market unfriendly" stance on trade this year stood in contrast to last year's market-friendly corporate tax cuts, Yeo said. Still, she said, the president is "pretty pragmatic" in his political decisions.

CEO confidence

And, as corporate financial results fall under the spotlight this earnings season, another measure worth watching will be CEO confidence, according to Ristuben.

Analysts have high expectations for second-quarter earnings, with profit growth forecast to grow 20 percent from last year, according to a FactSet poll. But amid that cheer, analysts said they'll be on the lookout for any discussion on the implications of the Trump administration's trade policies on expenditure plans and costs.

Apart from watching for international trade spats cropping up in guidance, Ristuben said he was also keeping an eye out for confidence surveys.

The most recent Business Roundtable CEO Economic Outlook Survey, conducted in May, showed that, even though business leaders still had relatively robust spending plans, they indicated concern that retaliation on the trade front posed a moderate-to-serious risk.

Correction: This story has been updated to reflect Rob Subbaraman's current professional title.