Tags: china | trade | tariffs | tax | consumers

Tariff 'Tax' Won't Sting US Consumers Until After Midterms

Tariff 'Tax' Won't Sting US Consumers Until After Midterms
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Friday, 24 August 2018 08:03 AM Current | Bio | Archive

New U.S. and Chinese Tariffs on $16 Billion of Goods

U.S. and Chinese officials ended two days of talks on Thursday with no major breakthrough as their trade war escalated with activation of another round of dueling tariffs on $16 billion worth of each country’s goods.

The implementation of the latest 25 percent tariffs on Thursday did not derail the talks, led by U.S. Treasury Under Secretary David Malpass and Chinese Commerce Vice Minister Wang Shouwen.

So, one could easily say that the yoke of additional tariffs (taxation) were hereby, once again, lowered onto the shoulders of the U.S. consumers.

Washington’s latest tariffs apply to 279 product categories, including semiconductors, plastics, chemicals and railway equipment, that the Office of the U.S. Trade Representative has said benefit from Beijing’s “Made in China 2025” industrial plan to make China competitive in high-tech industries.

China’s list of 333 U.S. product categories hit with duties includes coal, copper scrap, fuel, steel products, buses and medical equipment.

The effects of this "tax" will probably not be felt by consumers until after the midterm elections in November as it takes several months for a tariff hike to pass through into the prices that U.S. consumers will pay.

That will also be the case with the threatened tariffs on $200,000 billion of goods "partially" made in China, about which more information is due next week.

So, nothing immediate in terms of the economic impact.

Anyway, economists reckon that every $100 billion of imports hit by tariffs would reduce global trade by around 0.5 percent.

They have assumed a direct impact on China’s economic growth in 2018 of 0.1 to 0.3 percentage point, and somewhat less for the United States, but the impact will be bigger in 2019, along with collateral damage for other countries and companies tied into China’s global supply chains.

Besides that, China’s Commerce Ministry said in Beijing that it has filed a complaint with the World Trade Organization over the latest round of U.S. tariffs. The two countries have now targeted $50 billion of each other’s goods and threatened duties on most of the rest of their bilateral trade, raising concerns that the conflict could dent global economic growth.

President Trump and the Impeachment Subject

President Trump was also suggesting yesterday that the U.S. equity market would collapse were he impeached.

For investors, it is important to realize that the House impeaches and the Senate convicts.

To “impeach” means to bring charges in Congress which will form the basis for a trial. The U.S. constitution states a president “shall be removed from office on impeachment for, and conviction of, treason, bribery, or other high crimes or misdemeanors”.

So, impeachment is more likely than conviction, although neither is especially likely, at least not in my view. 

Moreover, there is no reason why conviction would be bad for the U.S. equity markets.

Conviction of President Trump would mean President Pence. Pence’s record as a member of Congress and as a State Governor suggest that fiscal policy would be similar or possibly slightly more market friendly. President Pence’s trade policies could almost certainly be better economically in the end for markets.  

Markets as a rule also dislike uncertainty. Pence’s Twitter feed would perhaps be a little less active than the Trump Twitter feed.

Jackson Hole Economic Symposium

The Jackson Hole summer camp for economists begins today and Fed Chair Powell’s speech at the conference is likely to be closely watched as it will also be Mr. Powell’s first public appearance since President Trump criticized the Fed’s campaign to raise interest rates.

Powell is of course a lawyer, not an economist, but Powell’s speech will probably have been written by somebody with an economics’ degree.

For investors it could be helpful recalling that Fed officials signaled in the latest FOMC minutes, which were released on Wednesday, that they are uneasy over trade policy, but not so much that they’re ready to scrap their plan to gradually push rates to a neutral setting that neither spurs nor slows economic growth.

Now, traditionally, Jackson Hole has looked to longer-term trends and at a time of momentous structural change that is probably more important than worrying about fluctuations in the near-term cycle.

Nonetheless, with trade taxes clearly a very high-risk priority for the Fed, markets will be quick to translate long-term concepts into short-term opportunities to speculate.

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

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The effects of this "tax" will probably not be felt by consumers until after the midterm elections in November as it takes several months for a tariff hike to pass through into the prices that U.S. consumers will pay.
china, trade, tariffs, tax, consumers
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2018-03-24
Friday, 24 August 2018 08:03 AM
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