12 days ago, Trump announced that the remaining $300 billion in Chinese goods headed for the US would receive a 10% tariff, in addition to the $250 billion in other products already tagged with a 25% levy.
The reaction by the markets and the Chinese government was both swift and negative. In a move that was credited ( or blamed depending on your perspective) to the People’s Bank of China, for all practical purposes equivalent to the US Federal Reserve, the yuan was “allowed” to drop below the 7 to 1 rate against the dollar. Hitting the lowest point relative to the US currency since 2008.
The announcement was made today by the administration that the 10% hike, tentatively scheduled for September 1st, would be delayed until December 15th for some of the items on the list that were to have the tariffs applied. Those rescheduled include many important products for the holiday gift-giving season, including consumer electronics, computers and products such as Apple’s iPhone.
Speaking to a group of reporters on an airport tarmac around noon on Tuesday, Trump seemed to acknowledge something he previously had not, that the tariffs, which he appears to love so much, would harm companies and consumers in the US:
“We’re doing this for the Christmas season,”…“Just in case some of the tariffs would have an impact on U.S. customers.”
Donald Trump, August 13, 2019
He then backtracked, apparently attempting to clarify that he still believed, erroneously, that only China would be affected negatively:
“But so far they’ve had virtually none,” he continued. “But just in case they might have an impact on people, what we’ve done is we’ve delayed it, so that they won’t be relevant to the Christmas shopping season.”
The tweet with the original announcement from August 1st:
Retreat and Regroup: The New Trump Strategy?
This move, which amounts to a one-hundred-and-eighty-degree shift from his previous actions as the aggressor and instigator in the trade war so far, was unexpected and, in many quarters, welcome.
Whether China will see this as a conciliatory move or as a clear sign of weakness, by a man known to bluff with threats and then back-track almost on a daily basis, remains to be seen.
Economic problems are looming both here in the US and in Asia, as analysts have begun to talk of a recession, and fears of the trade war fallout have, according to market commentators, weighed on the markets and significantly increased volatility. There is widespread Fear of a repeat of the swoon from December 2018 when the market dropped, capping off what turned out to be the worst performance in a decade, ending the year down over 6%.
For companies like Apple, of course, the delay at least until December 15th is welcome news and that was reflected in the market today, with Apple and Best Buy both rebounding, up around 5% and 8%, respectively.
As many have pointed out, when Tariff-Man imposes a levy on Chinese goods coming into the US, it is virtually everyone except China that pays.
First of all, the actual tax, which is what a tariff is, will be collected from US importers as the goods enter the country. The taxes are paid at that time directly to the US customs.
The impact on China is not positive, however, and the higher prices that inevitably result from the tariffs, when ultimately passed on to the US consumer, cause a decrease in sales volumes, thereby hurting the producers in China directly.
Basically, in a nutshell, as in all previous trade wars, in the end, everybody loses. This is why, in a previous post, we stated that Trump was joining a “circular firing squad” with no hope of a positive outcome.
Read more: Tariff-man Joins Circular Firing Squad
Since the impact on tariffs takes time to reach the US economy, it is right about now that the levies would create negative fallout for Tump, his campaign and his popularity (and lack thereof). Clearly, it is no coincidence that this retreat is happening now.
With a man in the White House that is known to vacillate, there is no easy way to ascertain if this retreat marks the beginning of a surrender phase for Trump. While the “it’s for Christmas” excuse can help him to save face in this moment, and seeing the stock market’s reaction is certain welcome for many, this war was Trump’s invention and it is unlikely that he will suddenly admit that he was in error for starting it in the first place.
The “American Carnage” that would have been seen in the economy and the stock market, had he gone through with his threats and even raised the 10% up to 25% is almost unfathomable, and we can all breathe a sigh of relief that, for now, an renewed escalation is somewhat less likely than it was yesterday.
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