[Analytics] Trump might have finally twigged his trade wars are hurting voters
“Through massive devaluation of their currency and pumping vast sums of money into their system, the tens of billions of dollars that the US is receiving is a gift from China. Prices not up, no inflation. Farmers getting more than China would be spending. Fake News won’t report.” That was Trump tweeting on Tuesday. Stephen Bartholomeusz specially for The Syndey Morning Herald.
Also on Tuesday, his administration announced it would delay, until December 15, imposing tariffs on nearly $US160 billion ($235 billion) of the remaining $US300 billion of China’s exports to the US that it had planned to impose from September 1. Tariffs of 10 per cent will still be levied on about $110 billion of imports, while some products that were to be on the tariff list have now been excluded.
Why, if China was footing the bill for the Trump tariffs and there were no inflationary impacts, would the administration not press ahead with its original plan and tax all those Chinese exports to the US not already subjected to tariffs from September 1 as planned?
Could it be that Trump, or at least some in his administration, have finally realised that it is US companies and American consumers footing the bill for Trump’s trade wars; that the tariffs are actually paid by the US importers, not the Chinese exporters?
Or that what are effectively taxes on US companies and consumers don’t even cover the cost of the farm aid packages the administration has put in place to compensate US farmers for the loss of their exports to China because of China’s retaliatory tariffs?
Maybe the fall in the US stock market of nearly 3 per cent since the start of the month shook a president who sees the market as a barometer of his success and re-election prospects, or perhaps it was the increasing, and increasingly vocal, despair of already-struggling retailers who saw the latest tariffs as a threat to the critical Christmas trading period.
“We’re doing this for the Christmas season, just in case some of the tariffs would have an impact on US consumers. So far they’ve had virtually none. The only impact is that we’ve collected almost $60 billion from China, compliments of China,” Trump said.
“But just in case they might have an impact on people, what we’ve done is we’ve delayed it so they won’t be relevant for the Christmas shopping season,’’ he said.
The administration’s about-face is, despite Trump’s comments, a tacit admission that it has either misunderstood or misrepresented the nature and effects of the tariffs.
The goods on which the tariffs have been deferred are items like smartphones, laptops, prams, consumer electronics, sports equipment, video game consoles, toys and some clothing and footwear and some, but not all, apparel. A lot of agricultural products, kitchenware and some clothing and footwear remain on the list of goods that will face tariffs from September 1.
Until the negotiations between the US and Chinese negotiators broke down in May most consumer products had been shielded from the direct impact of the trade war.
The tariffs on the $US300 billion of goods not previously subjected to them will, however, be felt by consumers and end the fiction that China is paying them. The cost to China is in lost production and sales, not cash transfers to US Treasury. Everybody loses in a trade war.
The bounce in the US sharemarket in the wake of Trump’s announcement is another indication of the sensitivity of financial markets to the ebbs and flows of the trade war.
Investors remain hopeful that some kind of truce will be negotiated, a prospect that might be strengthened if Trump is starting to come to a belated understanding that trade wars are neither good nor easy to win and that the more that becomes apparent to US consumers/voters the more it will impact his re-election prospects.
There was other news on Tuesday that contradicted Trump’s frequent assertion that, despite the trade war, there was no inflation in the US. He’s also used the very modest levels of US inflation in urging the Federal Reserve Board to cut US interest rates.
In June and July, however, inflation was accelerating at its fastest rate in more than a decade. In the year to July the consumer price index rose 1.8 per cent. On a three-month annualised basis core inflation, which excludes volatile items like gasoline and food, was 2.8 per cent.
The markets had been pricing in a strong probability of the Fed following up last month’s 25 basis point reduction in its discount rate – its first rate cut in more than a decade – with a 50 basis point cut next month. That prospect effectively disappeared with the CPI numbers and the expectation is now that the next rate reduction will be only 25 basis points.
If US inflation were to continue to accelerate, as it could do once the last tranches of tariffs are in place and pushing up the prices of all consumer goods imports from China, the Fed would have to rethink the direction of US monetary policy. Trump wouldn’t like that.
Stephen Bartholomeusz is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.