On Wednesday, after reports suggested Steve Mnuchin recently sent Chinese Vice Premier Liu He a letter offering to hold a fresh round of apparently high-level trade talks after discussions between David Malpass and a Chinese delegation went nowhere last month, we “gently” suggested that Donald Trump would likely throw cold water on any progress the Treasury Secretary managed to make.
And by “gently”, I mean we said “don’t hold your breath” at the beginning of a post that carried the deadpan title “Steve Mnuchin Invites China To Strike Another Trade ‘Truce’ So Trump Can Shoot It Down“.
Back in May, Mnuchin struck a tentative truce with Liu He after two days of talks in Washington. That truce (which revolved around the prospect of China purchasing more goods from the U.S.) lasted all of about 10 days.
Facing a backlash from the protectionist contingent and fearing Mnuchin’s “on hold†comments sent the “wrong†message to his base, the President abruptly changed course, refusing to grant further waivers to Canada, Mexico, and the European Union on the metals tariffs, and setting a deadline (July 6) for the imposition of duties on $34 billion in Chinese goods.
When you consider that with the very real possibility that Trump actually has no intention of deescalating the tensions with China no matter what Beijing agrees to, you’re left to wonder why the USTR bothers stringing everyone along. Why not just get to it and slap tariffs on everything China ships to the U.S.?
Fast forward less than 48 hours and Trump has apparently gone ahead and told his aides to move ahead with the duties on $200 billion in additional Chinese goods. That’s according to four sources who spoke to Bloomberg.
The comment period on those levies expired last Thursday and the administration received a variety of letters imploring the White House to refrain, but to no avail.
“Trump met with his top trade advisers on Thursday to discuss the China tariffs, including Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer”, Bloomberg says, citing the sources mentioned above and adding that when asked if he “was concerned about the impact of the new tariffs on negotiations with China, he responded that he wasn’t.”
This comes as no surprise. Trump effectively leaked this news on Thursday, when he tweeted the following:
The Wall Street Journal has it wrong, we are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing. We will soon be taking in Billions in Tariffs & making products at home. If we meet, we meet?
As ever, Trump doesn’t understand how tariffs work. The U.S. will not be “taking in billions”. The tariffs are a tax on U.S. consumers and will manifest themselves in higher prices going forward because as everyone has tried to explain to the President, it will be impossible for the administration to avoid finished goods in the next two rounds of duties. Recall this, from a Goldman note published last weekend after the President threatened to slap the Chinese with even more tariffs if Beijing responds as promised to the tariffs he’s getting ready to implement:
President Trump said Friday (September 7) that tariffs on an additional $267 billion of imports from China were “ready to go on short notice.†We believe it is more likely than not that the Trump Administration would propose those additional tariffs if China implements the retaliatory tariffs on $60bn of goods noted earlier. However, the outlook is particularly uncertain because the political implications of imposing tariffs on the remaining $267bn of imports would be much different than earlier tariff rounds. Whereas virtually no consumer goods have been targeted by tariffs so far, we estimate about one-fourth of the $200bn in imports subject to the next round of tariffs are consumption goods and, as shown in Exhibit 3, consumer products make up more than half of the remaining US imports from China, and would affect routine consumer purchases like clothing, shoes, mobile phones, and toys.
Clearly, Beijing will not be inclined to negotiate with Mnuchin if Trump moves ahead here, but what they will be inclined to do is hit $60 billion worth of U.S. products with differentiated levies as promised on August 3.
It’s not entirely clear what Trump is thinking at this point. It’s possible he believes slapping Xi in the face again will allow Mnuchin to enter negotiations from a position of strength, but it’s also possible the President sees some political utility in keeping this fight going ahead of the midterms so he can continue to push the “us versus them” rhetoric at rallies.
Who knows. Certainly not his advisors. And possibly not even Trump himself.
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