Donald Trump apparently wasn’t satisfied that people were worried enough about the prospect of tariffs on an additional $200 billion in Chinese goods.
As a reminder, the public comment period on the proposed next round of duties expired on Thursday and suffice to say the administration has been warned. Tech companies including Cisco and HP sent letters to the USTR on Thursday as the comment period lapsed. Other correspondence sent to Robert Lighthizer stressed that small and medium-sized enterprises as well as manufacturers are struggling to adapt to the new trade regime and won’t be nimble enough the deftly navigate the increasingly choppy waters in which global supply chains are being disrupted.
The problem, for the hundredth time, is that in addition to the threat the trade frictions pose to global growth (and, implicitly, to developing economies), the next round of tariffs on Chinese imports will invariably drive up prices on consumer goods in the U.S., potentially setting the stage for more inflation pressure and a more hawkish Fed.
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The imposition of levies on an additional $200 billion in Chinese goods will immediately be met with retaliation from Beijing in the form of differentiated duties on $60 billion in U.S. products.
The question mark around the next escalation between Washington and Beijing relates to whether Trump will opt for a 25% duty or a 10% levy. There’s a ton more on that here, but the bottom line is that the higher the tariff rate, the more upside risk for inflation and the more downside for risk assets.
On Friday, Trump added another question mark.
While speaking to reporters aboard Air Force One, the President indicated that he may slap tariffs on another $267 billion in Chinese goods on top of the prospective duties on $200 billion in products. There’s no readily discernible reason why he would have said that today and given that his comments came while aboard the presidential jet, this latest escalation comes out of the clear blue sky, both figuratively and literally.
Here is the actual quote:
I hate to do this, but behind [the $200 billion] there is another $267 billion ready to go on short notice if I want.
That hypothetical second tranche would bring the total amount of Chinese goods taxed to around $500 billion (the initial duties on $50 billion in goods that were implemented in two steps on July 6 and August 23 + tariffs on $200 billion more expected this month + this new threat against $264 billion in items). That’s consistent with Trump’s “I’ll go to $500 billion” rhetoric from July.
For context, here is why China is constrained in their capacity to respond reciprocally with tariffs and, implicitly, why Beijing will need to get “creative” going forward:
(Bloomberg)
Still unanswered is what the rate would be (i.e. 10% or 25%) and also up for grabs is whether he’s even serious at this point or whether he’s just saying whatever pops into his head while cruising around on a plane on the way another to one of his MAGA rallies in Fargo, where he’ll try to help raise cash for GOP Rep. Kevin Cramer’s Senate race (in the interest of accuracy, it’s actually not a rally, it’s a private fundraiser).
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Earlier today, Larry Kudlow made the media rounds, and here’s what he had to say about the tariffs, when pressed by Bloomberg:
He made similar comments to CNBC.
Trump’s new threats lend still more credence to the notion that this administration really has no intention of deescalating this situation. Trump needs battles to fight and windmills at which to tilt, especially in light of the fact that the tariffs are starting to hit home for folks in the farm belt.
There’s a narrative out there that says Trump “needs” or “wants” wins on trade ahead of the midterms. I continue to think that’s the wrong way to look at things. Trump needs, more than anything, an excuse to fire up his base and that base cares far more about finding confirmation bias for their misguided belief that globalism and nefarious foreigners are responsible for the decline of flyover America than they do about reality and actual results.
