It probably won’t surprise anyone to learn that Steve Mnuchin suggested the White House warn Beijing before moving ahead with another round of tariffs.
After all, the US trade delegation just got back from Shanghai, so the optics around slapping China with more duties barely 36 hours after the conclusion of the first principal-level talks since May aren’t great.
But as unsurprised as market participants will be to discover that Mnuchin pleaded with Trump to give Xi a heads up, everyone will be even less surprised to learn that Trump summarily ignored Mnuchin, in favor of trade policy by tweet.
Read more: ‘Tariff Man’ Returns: Trump Announces New China Tariffs, Stocks Crash
“There was a very passionate discussion in the Oval Office today with Mick Mulvaney, Bob Lighthizer and others about China”, Bloomberg’s Jennifer Jacobs detailed on Thursday evening. “Mnuchin wanted to give Beijing a heads-up about the fresh tariffs threat [but] Trump overruled him and tweeted with everyone still in the Oval”, she went on to say.
That must have been an extremely uncomfortable situation for all parties – all parties other than Trump, that is.
Of course, suffering through awkward Oval Office meetings with potentially momentous implications for the rest of the world is an occupational hazard most administration officials came to terms with long ago. Mnuchin has certainly seen his share of contentious policy pow wows.
According to Jacobs’s subsequent reporting, Mulvaney walked Trump through the “market effects” of the proposed new levies.
And just what are those “market effects”, exactly? Well, the immediate “effect” on stocks was that they plunged, and the same thing went for bond yields, as investors ran screaming to safety and ramped up Fed easing bets just a day after Jerome Powell tried to steer markets away from wagering that the July rate cut marked the onset of an easing cycle. “While we have not changed our baseline view that the Fed will cut by a total of 50bps this year, the tariff announcement tilts the risks toward deeper cuts and raises our subjective odds of a September cut from 60% to 80%”, Goldman wrote on Thursday afternoon.
From an economic perspective, this round is more serious than previous rounds. After noting that there’s still time for Trump to call off the dogs, Goldman reminds you that “from a procedural perspective, the White House can implement this announcement fairly quickly [as] the USTR released the proposed list of products subject to tariff on May 17 and [already] held public hearings”. After posting a final proposal with possible revisions, nothing stops the administration from implementing the new duties on September 1.
Trump proudly boasted to reporters on Thursday afternoon that the tariffs implemented to date have had virtually no impact on US consumers. That isn’t true, and it’s going to be even less true going forward. “The majority of affected imports are consumer goods (62%), compared to capital (28%) or intermediate (10%) goods, which constituted the bulk of the previous three tranches”, Goldman goes on to warn.
Apparel, footwear, toys and cellphones will all be affected in the next round. “Given the higher share of consumer goods, firms may pass on a higher proportion of these forthcoming tariffs to consumer prices compared to previous rounds”, Goldman says, in the course of predicting that “the next round of tariffs [will] be unpopular politically, as President Trump’s challengers likely continue to attack the President’s trade policy as harmful to American consumers”.
The timing is bad given that these latest tariffs would be imposed within weeks of the next Democratic debate, where the field will be narrowed to serious contenders only. That said, it’s worth noting that Elizabeth Warren and Bernie Sanders aren’t wholly opposed to Trump’s hardline stance on trade, even if their own plans differ markedly from the president’s shoot-from-the-hip style.
Getting down to specifics, Goldman sees core PCE inflation rising 20bps by year-end as a result of the new tariffs (assuming they are, in fact, implemented) and projects a GDP hit of 0.1-0.2%, which comes “on top of a 0.2% hit from the tariffs imposed to date”.
(Goldman)
And so, Trump continues to tempt fate.
The president clearly believes his luck will never run out, and who knows, maybe he’s right.
But if you believe pride goes before a fall, you’d be hard pressed not to acknowledge that nobody has further to plunge than Donald Trump.
Trump has taken American politics to another – unknown – level. He has exposed the supposed system of checks and balances for what it is, a toothless relic of the past with no one willing to challenge him. Having adopted a “just say no” attitude to the Legislature and the courts, and the media effectively neutered, he knows that he can say anything, do anything without consequence.
“But if you believe pride goes before a fall, you’d be hard pressed not to acknowledge that nobody has further to plunge than Donald Trump.” Pride is not the issue here. Hubris is. There will come a point in time where his reach far exceeds his grasp and the results will be spectacular. The problem will be that the American, and maybe the entire world, will suffer the effects. Trumps key weapons are fear and ignorance amongst the voting population. If he thinks that he will lose, he will create the conditions for a pyrrhic victory.
My guess is that this will happen during his second term, because I don’t see a Dem out there who has adapted to the new political and societal landscape. They are proceeding as if this is business as usual. The debates are meaningless. There are at least a dozen of the “candidates” that should be gone now so that, hopefully, we can start to zero in on the best candidates, and develop messages and policies that clearly show acute differences with Trump that matter to the voter. That’s not happening.
Nothing short of a full blown recession/depression/economic melt down or full blown trade war with the US against China, the EU, Mexico and whoever else, with the middle class being decimated as a result, will slow him down. Just remember the “grab em by the pu$$y” gaff – on tape even! He should have been “dead man walking”, but he survived. So again, pride is not the issue.
Voters (and Markets) don’t realize how serious this is. Looks like the Dems don’t either.
Trump and his band of idiots will tank this economy long before the election in Nov. 2020. Bank on it.
Hopefully not too long before the next election. The negative political fallout that would accompany the Oh, economic one might just – JUST – make up for the DEms apparent lack of someone to take him on and win…. Obama, where are you now that the world REALLY needs you?!
I am astounded how complacent the majority of the US population is. The evidence of his lies, his crimes, his ignoring lawful orders, his solo waging trade war, his scapegoating, etc, etc is staggering. Yet my neighbors are not moved to action, and the GOP does nothing. Democrats sure seem like a bunch of toothless and clueless idiots.
Trump’s re-election chances for an incumbent with low headline unemployment and low inflation are stunningly bad. A slowdown, let alone a recession will kill his chances…. in that event he will take the Republican party down with him. He has a decent shot of winning, but not if the economy slows…
I’m not sure how us consumers are paying the tariffs. All the PBOC has to do is fix the yuan 10% lower and the resulting price with the tariff is the same as before. IMHO the PBOC can dump USTs but what will be the result? Most likely higher yields, lower dollar, not exactly what Tariff Man wants. No one wants a bond temper tantrum.