Apparently unsatisfied with the sluggish pace at which trade talks are proceeding as Washington and Beijing labor to get a comprehensive trade deal over the finish line (or else just unsatisfied with the relative calm that’s settled in when it comes to the negotiations), Donald Trump injected a dose of his signature balderdash on Sunday.
“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods [and] these payments are partially responsible for our great economic results”, Trump tweeted, seemingly out of nowhere, before delivering a stunning threat as follows:
The 10% will go up to 25% on Friday. 325 Billions Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!
There’s a lot to unpack there, but starting with the obvious, Trump has just threatened to end the grace period that was established on February 24 (also by tweet), when the US delayed a move planned for March 1, after which duties on the $200 billion in Chinese goods which were taxed from September 24 would have more than doubled. The March 1 deadline was initially set for January 1, but the truce struck in Buenos Aires on December 1 pushed the day of reckoning out 90 days. And yes, that’s all just as ridiculous and confusing as it sounds.
The additional $325 billion in goods Trump referenced on Sunday refers to the balance of Chinese imports that could, in theory, be taxed as part of a final push by the administration to go “all-in”, something the president has threatened on numerous occasions over the course of the protracted trade spat.
Over the past several weeks, officials from both sides have suggested that recent progress on key sticking points including IP theft, forced tech transfer, state subsidies and, critically, enforcement, likely presages a final deal that could be ready to sign as early as June. Late last month, reports indicated Xi was considering traveling to Washington as soon as the deal was cemented for a signing ceremony with Trump.
That said, the generally rosy picture has been marred by a steady drip of conflicting headlines. This week, for instance, the Global Times suggested talks had hit an impasse. Some commentators have suggested that with China’s economy apparently stabilizing and Mainland Chinese stocks up some 25% in 2019, the incentive for Beijing to make further concessions isn’t there. Additionally, experts and business leaders are starting to fret about the mechanics of any enforcement mechanism that lacks a neutral third-party arbiter.
On April 4, Trump hosted Chinese Vice Premier Liu He for another farcical photo op at the White House. That episode produced the following epic ramble:
Here’s the transcript:
We’re getting very close to making a deal, but that doesn’t mean a deal has been made because it’s not, but we’re certainly getting a lot closer and I would think with-though…err… within the next four weeks, or maybe less, maybe more, whatever it takes, something very monumental could be announced.
Hindsight is always 20/20, but in retrospect, that might have been a bad omen.
Whatever the case, Trump has just meaningfully raised the stakes and whether he realizes it or not, he’s also risking a selloff in global equities just days after Jerome Powell signaled that a rate cut is not in fact imminent in the US.
We would also note that Trump continues to parrot falsehoods about the purported benefits of the tariffs. For instance, when he said, on Sunday, that “these payments are partially responsible for our great economic results”, it wasn’t clear what he meant and, in fact, it’s not clear that his assertion would be true on any interpretation.
Finally, it’s worth mentioning that one of the contributing factors to the Fed’s hawkish lean in 2018 was the threat of tariff-related price pressures. You’re reminded that if Trump does go “all-in” by taxing everything the US imports from China, it will be impossible to avoid a scenario where prices for consumer goods rise. That, in turn, undercuts the administration’s efforts to bully the Fed into cutting rates by referencing subdued inflation.
The bottom line is that exactly nothing good can come of Trump’s Sunday escalation. One hopes he can be dissuaded from ratcheting up the tension any further.