Tags: china | tariffs | consumers | economy

Consumers Will Suffer If More Tariffs Are Imposed on China

Consumers Will Suffer If More Tariffs Are Imposed on China
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Monday, 09 December 2019 02:28 PM Current | Bio | Archive

The excitement of Friday’s jobs report is already fading from financial markets as the next hurdle already looms on the horizon. The end of this week is the deadline for President Donald Trump to potentially add yet more tariffs/taxes to the growing taxation burden on U.S. companies. U.S. consumers may also be more affected by this proposed set of tariff/tax increases.

The increases in U.S. tax revenues from the trade tariffs have come solely from U.S. buyers of goods partially made oversees. Those buyers, so far, have generally been companies, and because of the nature of the U.S. taxes, these companies have tended to be quite large companies. This is why trade tariffs are effectively a tax on equities, albeit a particularly well-disguised one.

China did see exports to the United States fall significantly in recent data. There was a 23 percent decline, according to the Associated Press.

It’s not clear, however, how much of this is a rerouting of Chinese trade via other countries and how much of this is other countries substituting their own products for products that have been made in China.

Overall, China’s exports to the rest of the world did drop, and it is certainly true that Vietnam, Mexico, South Korea, and Taiwan have increased their market share in the United States for those Chinese goods that have already been taxed with tariffs.

However, the supply chains are rerouting, and the result is less economically efficient. U.S. buyers are buying their second choice of goods or are buying goods produced in their second-choice location.

While rerouting supply chains does not mean that U.S. companies pay more tax to the United States, it does mean that the costs of those U.S. companies are likely to increase, as they are no longer buying the most effective option.

The additional cost for trade is the general uncertainty this creates, and that is something that is not going to magically go away this week.

Trust in the global trading order that has been built over three decades sees the World Trade Organization (WTO) is being threatened with dysfunction, as the U.S. is expected to veto two judges at the WTO “appellate body” needed to make it work.

Last week demonstrated that just because there is a trade agreement doesn’t mean the trade agreement can be relied on for more than a couple of months.

The uncertainty is the main driver of weaker investment, which in turn has been the main driver of the global economic slowdown this year.

A good picture of this situation has been given in the just released J.P. Morgan Global Manufacturing PMI, which is a composite index produced by J.P. Morgan and IHS Markit in association with the Institute for Supply Management (ISM) and the International Federation of Purchasing and Supply Management (IFPSM), which came in at 50.3 after having been in contraction territory for seven months.

The fresh J.P. Morgan Global Manufacturing PMI report shows some tentative signs of recovery in November.

Over in Europe, Germany’s export data rose today unexpectedly by 1.2 percent month-on-month in October, well above the 0.7 percent contraction that analysts had expected. German exports also increased by 1.9 percent and imports decreased by 0.6 percent year over year in October.

The surprising rise in exports should raise hopes the German manufacturing powerhouse can avoid contracting in the final quarter. German trade data have recently been hurt by uncertainty, and Germany is an exporter of investment goods.

Central banks have attempted to balance all of this with what’s called “insurance policy style” accommodation, but that process is probably over.

The Federal Reserve and the European Central Bank (ECB) are not expected to surprise the financial markets with any policy shifts at their meetings this week.

Finally, North Korea has conducted some what it calls “very important” tests at its Sohae satellite launching station, a rocket-testing ground that U.S. and South Korean officials once said Pyongyang had promised to shut down.

Financial markets do not tend to price in tail risks like the Korean situation.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
 

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The excitement of Friday's jobs report is already fading from financial markets as the next hurdle already looms on the horizon. The end of this week is the deadline for President Donald Trump to potentially add yet more tariffs/taxes to the growing taxation burden on U.S....
china, tariffs, consumers, economy
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2019-28-09
Monday, 09 December 2019 02:28 PM
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