Twice in one week.
Just days after ECB president Mario Draghi (and other Europeans) suggested that Trump's proposed deregulation has "sown the seeds of the next financial crisis", when he told the European Parliament that "the last thing we need at this point in time is the relaxation of regulation. The idea of repeating the conditions that were in place before the crisis is something that is very worrisome", clearly ignoring that one of the biggest timebombs facing the world is his own balance sheet...
... moments ago Trump was also preemptively cast as the scapegoat for the next global economic crash by none other than rating agency Fitch.
In a self-explanatory report titled "The Trump Administration Poses Risks to Global Sovereigns", Fitch is sounding the alarm on the potentially negative consequences of Trump's economic policies, even though none have been officially disclosed yet.
In the report Fitch warns that "the Trump Administration represents a risk to international economic conditions and global sovereign credit fundamentals" and cautions that because "US policy predictability has diminished, with established international communication channels and relationship norms being set aside", this raises the "prospect of sudden, unanticipated changes in US policies with potential global implications."
Before it unleashes its criticism, Fitch concedes that elements of President Trump's economic agenda "would be positive for growth, including the long-overdue boost to US infrastructure investment, the focus on reducing the regulatory burden and the possibility of tax cuts and reforms, assuming cuts don't lead to proportionate increases in the government deficit and debt. One interpretation of current events is that, after an early flurry of disruptive change to establish a fundamental reorientation of policy direction and intent, the Administration will settle in, embracing a consistent business- and trade-friendly framework that leverages these aspects of its economic programme, with favourable international spill-overs."
However, it then quickly shifts to laying out the negatives, which it believes are more likely to prevail:
The primary risks to sovereign credits include the possibility of disruptive changes to trade relations, diminished international capital flows, limits on migration that affect remittances and confrontational exchanges between policymakers that contribute to heightened or prolonged currency and other financial market volatility. The materialisation of these risks would provide an unfavourable backdrop for economic growth, putting pressure on public finances that may have rating implications for some sovereigns. Increases in the cost or reductions in the availability of external financing, particularly if accompanied by currency depreciation, could also affect ratings.
It then explains that base case is not favorable, noting that in Fitch's view, "the present balance of risks points toward a less benign global outcome."
The Administration has abandoned the Trans-Pacific Partnership, confirmed a pending renegotiation of the North American Free Trade Agreement, rebuked US companies that invest abroad, while threatening financial penalties for companies that do so, and accused a number of countries of manipulating exchange rates to the US's disadvantage. The full impact of these initiatives will not be known for some time, and will depend on iterative exchanges among multiple parties and unforeseen additional developments. In short, a lot can change, but the aggressive tone of some Administration rhetoric does not portend an easy period of negotiation ahead, nor does it suggest there is much scope for compromise.
The rating agency warns that sovereigns most at risk from adverse changes to their credit fundamentals "are those with close economic and financial ties with the US that come under scrutiny due to either existing financial imbalances or perceptions of unfair frameworks or practices that govern their bilateral relations"As a result, nations that could suffer include Canada, China, Germany, Japan and Mexico, which have been identified explicitly by the Administration as having trade arrangements or exchange rate policies that warrant attention, "but the list is unlikely to end there." Here Fitch takes a stab at Mexico saying that "our revision of the Outlook on Mexico's 'BBB+' sovereign rating to Negative in December partly reflected increased economic uncertainty and asset price volatility following the US election."
Fitch also cautions that as a result of proposed protectionist policies, "the integrative aspects of global supply chains, particularly in manufactured goods, means actions taken by the US that limit trade flows with one country will have cascading effects on others. Regional value chains are especially well developed in East Asia, focused on China, and Central Europe, focused on Germany. "
Curiously, Fitch also takes a detour into Trump's most controversial policy to date, his immigration executive order, and says that tighter immigration controls and possible deportations "could have meaningful effects on remittance flows, as the US has the world's largest immigrant population." Here Mexico would be most in danger as "Mexico share the world's top migration corridor and have the largest bilateral remittance flows." Relative to GDP, remittances are even larger for Honduras, El Salvador, Guatemala and Nicaragua, all of which receive most inflows from the US.
Finally, Fitch warns about the risk to retaliatory measures in the form of offshore direct investment in the US, and says that "countries hosting US direct investment at least part of which has financed export industries focused back on the US, are at risk of being singled out for punitive trade measures."
The list of these countries is potentially long, since US-based entities account for nearly one-quarter of the stock of global foreign direct investment. Countries with the highest stock of US investment in manufacturing are Canada, the UK, Netherlands, Mexico, Germany, China and Brazil.
In short, one wrong policy by the Trump administration, and the carefully constructed house of cards, built over decades of globalization, is in danger of collapse, resulting potentially in a global economic crisis.
And so, after two official warnings by some of the most established institutions, Trump has been officially put on notice that should anything bad happen to the world economy, it will be his fault, as all those who lit the burning fire, quietly wash their hands.