Has Trump’s credibility on trade taken a big hit?

Is the Trump trade finally running out of steam? That is the intriguing question as investors react to the failure of the new administration's health reform plan, selling equities and moving cash back into safe havens such as gold and government bonds.

As the presidential election results were being announced on that fateful night last November, the US dollar fell and the expectation was that we were in for a long period of nervousness, notably in equity markets and for US dollar. In the event, the mood quickly turned. Investors chose to push their worries to one side and focus on the promises of Donald Trump to cut taxes and slash business regulation.

As is often the case in financial markets, the actual reasons for the rising stockmarket were probably a bit more complex. Evidence has been growing of an international economic recovery, and worries about China have also receded. All this benefits big US companies, which sell around the world and also served to boost their share prices.

Typically markets are driven by economic and business factors, while also keeping an eye on the political backdrop. Now, however, they are increasingly having to grapple with politics – not only in the US, but also in Europe where there are warnings that the euro could tumble if Marine Le Pen wins the French presidential election. And when it comes to Trump, little, of course, is predictable.

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The question now is what is the future of the Trump agenda of tax reductions, cutting regulation and an aggressive approach to trade. The failure to get political support for the healthcare reform bill has raised questions over whether the tax cutting plans – which include big cuts to corporate profits tax – will face the same fate.

House of Representatives speaker Paul Ryan failed to rally Republican support behind the healthcare plan. The same problems – rallying a disparate Republican group with little hope of much Democrat support – could spell problems for the tax proposals.

Merrill Lynch analysts have said if the tax legislation was passed at all it "could be a very watered-down version of current proposals".

The White House is now saying that the tax-cutting plan is a priority. Trump needs a win on this or the credibility of his whole economic programme could collapse.