In yet another bit of incrementally disconcerting trade news, Donald Trump wanted to double existing tariffs on China last month after Beijing retaliated to the duties announced on August 1.
In the days leading up to China’s August 23 decision to hit $75 billion in US goods with tariffs, Trump indicated he did not expect Beijing to hit back after his latest broadside. That assumption proved to be misguided. It’s not clear why Trump believed China would sit on its hands. After all, the tariffs announced on August 1 represented a flagrant slap in the face to President Xi, who had agreed to deescalate the situation barely a month earlier in Osaka.
Trump was furious after the retaliatory measures were announced and according to three sources who spoke to CNBC, “his reaction, communicated to aides on a White House trade call held that day, was to suggest doubling existing tariffs”.
Initially, the president took his frustration out on the Fed in a series of bombastic tweets which sent stocks tumbling to one of their worst days of the year.
Had Trump doubled all existing tariffs, it would have meant duties on the $250 billion in goods taxed at 25% would have jumped to 50%.
Steve Mnuchin and Bob Lighthizer were understandably concerned. According to CNBC’s sources, the two men “enlisted multiple CEOs to call the president and warn him about the impact such a move would have on the stock market and the economy”.
Ultimately, Trump announced a 5% tariff hike after the bell that Friday. Two days later, while in France for the G-7, the president was asked by a reporter if he had any “second thoughts”. In response, he appeared to suggest he regretted escalating things further, but both White House Press Secretary Stephanie Grisham and Larry Kudlow later clarified that he didn’t understand the question. What Trump meant, they said, was that he regretted not raising the tariffs even higher.
As we wrote at the time, the White House’s “reinterpretation” of Trump’s rejoinder to the “second thoughts” question was entirely consistent with what you’d expect from this president. His angry tweets on August 23 included a command that US companies exit China and he also said he intended to have carriers search packages emanating from the country for illicit fentanyl. Those remarks were indicative of a desire to deliver an outsized response. By comparison to his tweets, the 5% hike to the tariff rate on two tranches of goods seemed measured.
Now we know that in fact, Trump would have done something much more impactful had Lighthizer and Mnuchin not asked business luminaries to call him and talk him off the ledge.
On Tuesday, Trump lashed out at China again, threatening to decimate supply chains and cause massive job losses for the country. He also promised that if Beijing tries to wait him out until 2020 and he prevails in the election, the terms of any deal will be “much tougher”.
Markets were not amused. Neither, one imagines, were Trump’s negotiators, who are desperately trying to salvage talks with Liu He originally planned for this month in Washington.