Tags: investors | trump | tariff | taxes | mexico

US Consumers Dodge Yet Another Tax, at Least for Now

US Consumers Dodge Yet Another Tax, at Least for Now
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Monday, 10 June 2019 12:56 PM Current | Bio | Archive

Americans appear to have “dodged,” at least for now, another tariff or tax increase. The United States and Mexico have agreed a deal that avoids further tariff/tax increases on goods that spend anytime south of the U.S. – Mexican border.

It appears that the costs of these tariffs/taxes will be coming apparent. The threatened U.S. avocado price hyperinflation should now be avoided…

The good news is “no tariff/tax.” The bad news is that the “tax genie is out of the bottle” and companies may now continuously look nervously over their shoulders for fear that the threat may reappear at some unspecified point in the future.

For now however, equities and the Mexican peso have taken the news positively as there is no immediate 5 percent tariff/tax, which would otherwise have come into effect today.

It’s risk-on all over the place, at least for now.

In the meantime, the G20 taxpayer funded weekend mini-break for finance ministers in Japan also expressed support alongside the normal platitudes that such an event brings.

There is a question as to what this means for the U.S. trade negotiations with China. On the one hand, there is precious little evidence of much happening in the trade negotiations with China.

Anyway, China introduced a list of strategic technology that would be subject to export restrictions over the weekend and while that may not matter that much to the United States, it is another small step towards “escalation,” The South China Morning Post reported.

On the other hand, the Mexican deal may show that there is a genuine understanding that the cost of trade tariffs/taxes, although that may be easier to see that with Mexico than with China.

At the same time, doing a deal with Mexico reduces the risk of fighting trade battles on different fronts and it allows the United States to concentrate almost exclusively on China.

As Mexico has picked up market share from China in some of the areas that were already subject to trade tariffs/taxes, this also means that the effect of the trade tariffs/taxes on Americans remains less aggressive than would otherwise have been the case.

Had Mexican goods had been taxed as well, it would have been a lot harder to “evade” the tariffs/taxes on Chinese goods.

The trade deal comes in the wake of Friday’s U.S. employment situation report that was weaker on the “surface” but not so weak in the details.

The problem with the U.S. economy that is at or approaching full employment is that the measures of job creation can be just as limited by a lack of labor supply as by a lack of labor demand, and it can be hard to determine which is the dominant trend.

However, the Fed’s "beige book" that was released last Wednesday, certainly suggests that there may be some slight constrains. Overall, the underemployment rate fell suggesting that companies are still using people more intensely and again that fits with the idea of a still tight labor market.

Japanese GDP for the first quarter was revised slightly higher to 2.2 percent, which was expected, basically because there was less inflation than initially thought, Reuters reported.

Business spending improved a bit and that’s going to be an area to watch as it has implications globally for countries like Germany, say that has not been exporting as much as a result of weaker global investment demand.

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

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The good news is “no tariff/tax.” The bad news is that the “tax genie is out of the bottle” and companies may now continuously look nervously over their shoulders for fear that the threat may reappear at some unspecified point in the future.
investors, trump, tariff, taxes, mexico
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2019-56-10
Monday, 10 June 2019 12:56 PM
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