12 Leaders The EconomistJanuary 27th 2018(^2) of more than 20%, commonplace during the go-go years, they
would be doing something wrong (see page 59).
Goldman has changed much less since the crisis. James
Gorman, Morgan Stanley’s chief executive, made his way in
wealth management; by contrast, Goldman’s boss, Lloyd
Blankfein, cut his teeth as a trader, and it shows. Goldman’s
business is lumpier and more volatile. It is more dependent
than Morgan Stanley on its fixed-income, currencies and com-
modities (FICC) franchise. For a firm that sells itself on reading
markets better than anyone else, that bet has hurt its reputa-
tion as well as its bottom line. Revenue from FICCin the fourth
quarter of 2017 fell more precipitously, year on year, at Gold-
man than at its peers; for last year as a whole, revenue was not
much more than a fifth of what it was in 2009.
The fixed-income business could yet revive, especially if in-
terest rates rise and markets become more volatile (see Button-
wood). Regulatorsin America are planning to streamline the
Volcker rule, a post-crisis ban on banks using theirown money
to trade. But the chances of the trading floors recovering past
glories are vanishinglythin. Because regulators will go only so
far to loosen the shackles, the capital-intensity of businesses
like FICCwill still weigh on returns. And as bond markets grad-
ually become electronic, banks’ margins will shrink, just as
they have in equity markets. Goldman itself openly acknowl-
edges the need to change.
The boring companies
All of which makes Morgan Stanley’s overtaking manoeuvre a
parable for the industry. Lesson one is that, despite what bank-
ers like to argue, itis possible to make a reasonable return in a
more regulated environment. Lesson two is that dullness can
be a selling-point. Investment banks used to promise share-
holders outsize returns as the trade-offfor their peculiar mix-
ture of volatility and opacity; that bargain looks much less ap-
petising today. Lesson three is that power on Wall Street has
tilted away from traders and high-octane clients like hedge
funds towards a more prosaic cast of characters: brokers, pas-
sive asset managers, corporate treasurers and well-off individ-
uals. Investment banks can still make decent returns. But not if
they play by the same old rules. 7
O
N TRADE, President Do-
nald Trump has launched
lots of investigations, with-
drawn from one deal (see Ban-
yan) and started the renegotia-
tion of another. But this week is
the first time he has put up a big
new barrier. On January 22nd
he approved broad and punitive duties, of up to 30% on im-
ports of solar panels and up to 50% on imports of washing ma-
chines. His backers say that the measure, which affects around
$10bn of imports, will protect American workers. His critics
cling to the hope that the damage will be mild. Both are wrong.
Start with the claims made by the administration. Workers
are also consumers, and Mr Trump’s actions will whack them.
Tariffs raise prices and dull competition. Whirlpool Corpora-
tion, the washing-machine maker which asked for the duties,
knows as much. When, in 2006, it merged with Maytag, a rival,
it quelled concerns about its high market share by pointing to
competition from abroad. One study found that clothes-dryer
prices rose by 14% after the merger. For washing machines,
where import competition was fiercer, prices were unchanged.
Even if American wallets are pinched, surely American
jobs are safer? Whirlpool is creating200 new posts. Samsung
and LG, two South Korean washing-machine makers, are
ramping up their American production. But their deals were
hatched before Mr Trump came into office, spurred in part by
the logic of making heavy machines close to customers.
The solar industry is a clearer case. It has about 260,
workers, a mere 2,000 of whom were making solar cells and
panels at the end of 2016. The government reckons that the fast-
est-growing occupation over the next ten years will be that of
solar installer. The Solar Energy Industries Association, a body
that is enraged by the new tariffs, reckons that the industry will
support up to 23,000 fewer jobs because of them. Meanwhile,
as if to underline the irony, the two companies that asked for
protection are unlikely to be saved.
And do not forget that the tariffs may harm American in-
dustry more broadly. Restricting markets for imports tends to
spark retaliation that restricts markets for exports—especially
when, as with these latest tariffs, they affect everyone. China,
supposedly the focus of American ire, produces 60% of the
world’s solar cells and is responsible for21% of America’s im-
ports. But South Korea will also be hit, and its government is
poised to dispute America’s action at the World Trade Organi-
sation. Other casualties include Mexico, Canada and the Euro-
pean Union.
President, not precedent
Critics of this week’s tariffs draw solace from the fact that Mr
Trump’s actions were broadly in line with the steer from the
United States International Trade Commission, a quasi-judi-
cial review body, and in both cases were weaker than the peti-
tioners had originally requested. They point out, too, that occu-
pants of the Oval Office have resorted to global “safeguard”
tariffs on 19 previous occasions.
That Mr Trump has stayed within the rules is small comfort:
they give him enormous scope to poison world trade. And it
would be wrong to skate over the differences between his ad-
ministration and its predecessors. The lasttime this particular
safeguard was applied was in 2002. It is especially belligerent.
Past presidents remained wary of hurting American consum-
ers, and mindful ofinternational repercussions. Mr Trump, by
contrast, seems to hold a steadfastbelief that protectionism
works. His rhetoric—and now his actions—invite aggrieved pe-
titioners to apply for help. The logic of his stance on trade is to
use tariffs not sparingly, but repeatedly and aggressively. Mr
Trump is now open for business, just notthe healthy sort. 7
Trade tariffs
Duties call
The Trump administration’s trade restrictions are more damaging than they appear
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