Wednesday, December 4, 2019

The Trade War Heats Up Again

President Trump provoked a stock market selloff yesterday when he told reporters that a China trade deal might not be completed until after next year’s election. There are also possible new tariffs on France as well as renewed import taxes on Brazilian and Argentinian steel. The combined announcements of disappointing trade news on multiple fronts show that the trade war is still going strong.

The president sent stocks tumbling yesterday when he told reporters at the NATO conference in London, “A China trade deal is dependent on one thing — do I want to make it.”

Mr. Trump added, “In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right.”

Back in October, President Trump announced the deal with China, but a firm agreement has so far failed to materialize. Last spring, a near-agreement with China on trade fell apart when Mr. Trump, the self-proclaimed “tariff man,” balked at removing the taxes on Chinese imports.

Now negotiators are racing a Dec. 15 deadline imposed by the President last summer. At the end of next week, $300 billion in Chinese products are scheduled for a 15 percent import tax increase. The December 15 tax increase includes consumer goods not previously subjected to tariffs. These include technology products such as cellphones and computers that will be in high demand in the weeks before Christmas.

Today, Trump Administration officials are working to undo the damage of what they call an “off the cuff” remark. Officials cited by Bloomberg downplayed the notion that trade talks were at an impasse and were hopeful for a resolution before the scheduled tax increase next week.

Agriculture Secretary Sonny Perdue told CNBC, “ Trump wants to conclude a deal that can be enforceable, that can be reliable and be consistent with what the deal says.”

“We in agriculture are optimistically hopeful we can conclude this,” Perdue said, adding, “Every farmer in America would rather have trade than aid.”

The prospect of increased tariffs on Chinese imports comes days after the president announced that he is restoring steel and aluminum tariffs on Brazil and Argentina. In a tweet on Monday, President Trump accused the two countries of devaluing their currencies, which he said was “not good for our farmers.” Mr. Trump’s response was to restore the steel and aluminum tariffs that were originally imposed in May 2018.

However, a devalued currency is a byproduct of a tariff war. In an undated article on American Express, Frances Coppola explained that, when the US places a tariff on imports, companies in the targeted country receive fewer US dollars. Those dollars would often be traded on monetary exchanges for the local currency. Since fewer dollars are being traded for Brazilian reals or Argentinian pesos, the demand for those currencies drops and their value goes down.

In reality, America’s farmers are suffering because China retaliated to President Trump’s tariffs with retaliatory taxes on American exports. These taxes hit American agriculture hard, but they benefitted countries like Brazil. Where American farmers used to export to China, the trade war has shifted Chinese agricultural purchases to countries that compete with the US. Brazilian farm products have helped to replace American products in China.

Finally, there is also the prospect of new tariffs on France. Also on Monday, President Trump threatened 100 percent tariffs on a long list of French products that includes wine, cheese, beauty products, and handbags in retaliation for a French tax on digital services that impacts American social media companies such as Facebook and Google. The new US tariffs would be in addition to tariffs on $7.5 billion in European goods that the Administration imposed in October.

“If anyone is going to take advantage of the American companies, it's going to be us, it's not going to be France,” Trump told CNN.

France has pledged to “retaliate strongly” if the proposed tariffs go into effect. So far, the Trump Administration has not released an implementation date for the new tariffs.

With an impeachment already in process and presidential approval underwater, the economy has been one of the few bright spots in President Trump’s reelection campaign. Despite the risks of meddling with the economy, Mr. Trump cannot help himself when it comes to tariffs.

For months, there have been signs that the economy is slowing even though the stock market has continued to climb and unemployment remains low. US manufacturing has contracted for four straight months and the farm economy is being propped up by government handouts. Businesses are hesitant to make plans and investments when the president might tweet a drastic regulatory change at any moment. Many of these warning signs can be traced to Mr. Trump’s arbitrary trade policies. If he chooses to ignore them and is damaged in the 2020 elections by a weak economy, he will have only himself to blame.   

Originally published on The Resurgent

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