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Cohn's White House exit sets off more volatility in global markets

Gary Cohn, President Donald Trump's top economic adviser, briefs reporters at the White House in Washington on Jan. 23, 2018. Cohn plans to resign, becoming the latest in a series of high-profile departures from the Trump administration, White House officials said on Tuesday, March 6, 2018. (Doug Mills/The New York Times/Copyright 2018/New York Times)

U.S. stocks pulled back from initial steep drops Wednesday after a postitive jobs report appeared to temper market fears - for the time being - that Gary Cohn's exit as President Donald Trump's economic adviser signaled the ascendance of a White House protectionist faction that could trigger a global trade war.

The Dow Jones industrial average in early trading was floating down about 200 points, nearly 1 percent, on fears that a trade war is brewing after Trump's announcement last week of a 25 percent tariff on steel imports and 10 percent on aluminum. Standard & Poor's 500-stock index and the tech-heavy Nasdaq composite both fell about 0.5 percent. The small-cap Russell 2000 was in positive territory.

Asian markets suffered across-the-board losses overnight, with the Nikkei 225 dropping 0.77 percent, the Hang Seng down 1 percent. European markets recovered from early losses, with the FTSE 100 up 0.15 percent, the German DAX up half of one percent and the French CAC 40 down a bit.

Charlie Ripley, investment strategist with Allianz Investment Management, said the market on Wednesday is reacting negatively to fears of protectionism, but Wednesday's jobs report is a big counterweight.

"The economic backdrop remains pretty positive," Ripley said. "The job numbers today were pretty solid. Friday's monthly Labor Department employment report will be closely watched because it is the key to wage inflation. The focus will be on average hourly earnings."

Wall Street saw Cohn was the last powerful voice in the Oval Office arguing against tariffs on steel and aluminum and against Trump's threats to break up the North American Free Trade Agreement. His resignation is a sign of defeat for the pro-free trade crowd, which includes many big business leaders, farmers and globalists.

But the big plunge predicted overnight didn't hold, as companies added 235,000 positions in February, ADP and Moody's Analytics reported Wednesday morning, far oupacing the 195,000 that Thomson Reuters predicted.

That's the fourth consecutive month of 200,000-plus jobs created.

The White House so-called protectionist faction is led by Commerce Secretary Wilbur Ross and Peter Navarro, who advised the president's pro-protectionist narrative during the 2016 campaign.

Some analysts said it's still early to assess the tariff impact.

"The key thing to remember is that the details are scant on the administration's tariff plans," said Putri Pascualy, managing director for PAAMCO. "Although tariffs will have some negative downstream impact on select industries such as automakers and beverage manufacturers, until further details emerge it is difficult to assess the impact."

The best hope for investors and business leaders fighting the tariffs is that Republicans in Congress will step up even more to pressure Trump to exclude Canada and other key countries from the tariffs. Otherwise, the European Union and many other trading partners are likely to rapidly hit back with tariffs on U.S. industries.

But there's a lot more coming on trade than just steel and aluminum tariffs. The Trump administration is also in the midst of plans to go after China in what is known as a "Section 301" fight in retaliation for the Chinese allegedly stealing U.S. intellectual property on a wide variety of products including robots and video games. This could set off an even nastier trade fight between the United States and China.

"The Section 301 action on China will be announced at some point in the near term. That investigation finished in early January," said Rob Martin, head of U.S. economics at UBS and a former Bush administration economist. "My view is that the Trump administration is just waiting for an opportune time to announce actions."

Authors Information: Heather Long is an economics correspondent. Thomas Heath is a local business reporter and columnist, wriitng about enrepreneurs and various companies big and small in the Washinhgton metropolitan area.