Trump Said Ready To Slap Tariffs On All Chinese Imports If Talks With Xi Fail (Which They Will)

I’m not even sure this is worth documenting because it’s one of those “what else did you expect?” type of deals, but apparently, the Trump administration is all set to move ahead with more tariffs on China in the event talks between the U.S. President and Xi Jinping at the G-20 “fail”.

To say expectations for that prospective meeting aren’t high would be an understatement. Trump clearly believes that in the event tariff jitters contribute to losses on Wall Street, he can just deflect by blaming the selloff on Fed policy.

Meanwhile (and this is something we’ve pounded the table on for months), it is by no means clear that Trump has any intention of deescalating this ahead of the midterms or really, ever. In fact, it’s possible that the White House actually views the ongoing tension with Beijing as a necessary component of a strategy that involves perpetuating the “us versus them” narrative when it comes to keeping the base riled up.

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Dream States: Why No Resolution To Current Political Conflicts Is Possible

According to a trio of people familiar with the plans cited by Bloomberg, the administration plans to publish a new list in early December which means the actual imposition of the duties (after a two-month public comment period) would coincide with China’s Lunar New Year holiday.

Predictably, the list will target some $257 billion in imports or, more to the point, this would be the culmination of Trump’s threat to “go to $500 billion”, thereby slapping tariffs on everything China ships to the U.S.

Although Trump’s “I’ll go to $500 billion” rhetoric dates back to a July CNBC interview with Joe Kernen, the President renewed the threat on September 7, just ahead of the decision to move ahead with “phase 2” of the 301 investigation-related tariffs which target $200 billion in Chinese goods.

“I hate to do this, but behind [the $200 billion] there is another $267 billion ready to go on short notice if I want”, he said early last month, while speaking to reporters aboard Air Force One.

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Trump Delivers $267 Billion Trade Escalation Out Of The Clear Blue Sky (Figuratively and Literally)

Again, the new round of tariffs targeting $257 billion in goods will mean that, in combination with the existing tariffs, Trump will be taxing the entirety of Chinese imports. 

(Bloomberg)

The disparity in the chart above means Beijing can no longer respond reciprocally and will thus be forced to get “creative”, where that can mean any number of things, none of which are positive for risk sentiment.

China has logged two consecutive record surpluses with the U.S., with the September figure clearly indicating a mad dash to get out ahead of further tariffs.

(Bloomberg)

This comes at a particularly delicate time both for the U.S. and China. For Trump, the new tariffs risk adding upward pressure to consumer prices at home just as the Powell Fed is hiking rates in the interest of staying ahead of any further uptick in inflation.

For China, Q3 GDP came in below expectations underscoring the notion that the economy continues to decelerate. There are also early signs of deteriorating domestic consumer demand, although retail sales appear to be holding up ok. Beijing is also grappling with a flagging stock market which has recently become highly volatile thanks in part to forced selling and margin calls. Reports now indicate China is prepared to sell reserves to defend the yuan should trade frictions push the currency toward the psychological 7-handle.

The irony is of course that should Trump move ahead with more levies on Chinese goods, it will invariably force Jerome Powell to take tariff-related price pressures into consideration when evaluating the appropriate course of monetary policy. The more hawkish Powell is, the stronger the dollar, which serves to water down the tariffs.

The concern is that the Fed will end up hiking too aggressively in the face of wage pressures from an overheating labor market and rising consumer prices thanks in part to the tariffs, against a backdrop where higher input costs end up wiping out earnings growth for the U.S. corporate sector. It’s entirely possible that aggressive hikes won’t come in time to head off inflation but will instead only serve to undercut growth, leaving only inflation behind. In other words: The worry is stagflation.