Tags: trade | tariffs | business | trump

US Business Group Warns of 'Strong Negative Impact' From Trade Tariffs

US Business Group Warns of 'Strong Negative Impact' From Trade Tariffs

By    |   Thursday, 13 September 2018 08:11 AM

The Wall Street Journal reported that Treasury Secretary Steven Mnuchin has invited China for a fresh round of trade talks trying to avoid have to burden U.S. consumers with ever more tariffs or higher taxes.

This follows a steady rise in political pressure on President Trump to ease up on trade fights, which have pinched consumers and prompted painful retaliation against U.S. exports. Given the difficult nature of the trade talks between China and the U.S. over the past year, there is no guarantee the invitation will yield a meeting.

China’s Commerce Ministry confirmed it received the invitation. Chinese officials said they have grown wary of the Trump administration’s unpredictable decision-making process and may be hesitant to accept without a clear sign that U.S. negotiators have authority to speak for the president.

This scramble to have talks with anyone who might be prepared to listen, seems a rather odd negotiating tactic, perhaps it’s just part of ‘the art of the deal’, but markets liked it.

Of course, markets liked it. Equity markets are made up of companies who do the overwhelming majority of global trade.

Interestingly, a joint survey by AmCham China and AmCham Shanghai that was released today reads: “…Over 60 percent of respondents say the initial $50 billion of tariffs from both the U.S. and China negatively impact their companies. The percentage of companies expecting to be negatively affected by the second round of tariffs jumps to 74.3 percent for the U.S. tariffs ($200bn) and 67.6 percent for Chinese tariffs ($60bn). Over twice as many companies anticipate a 'strong negative impact' if the second round of tariffs are implemented…”

AmCham stands for American Chamber of Commerce is a business-oriented American lobbying group that is not an agency of the U.S. government.

Also, and as what was to be expected, the Federal Reserve’s ‘Beige Book’ that was released yesterday also shows that tariffs are a subject of concern. The ‘Beige Book’ reads: “Nearly two-thirds of the firms that offered general comments noted that price hikes and/or supply disruptions had already occurred or were anticipated because of tariffs and the threat of tariffs. For those firms already impacted, contacts often cited double-digit price increases; some typical responses were that tariffs ‘have put us out of business’ on certain products and are a cloud on every facet of our business planning.”

U.S. Consumer Price Index (CPI)

Today, we’ll also get the U.S. inflation data for August. The core rate is expected coming in at about 2.3 percent on the year. Of course, the Fed prefers to focus on the personal expenditure deflator while the financial markets are more inclined to react to the consumer price inflation number than to the PCE deflator.

This is not rational, but then financial markets are not necessarily rational.

ECB, Bank of England and Turkish Central Bank Rate Decisions

Central bank action is something of a focus today:

  • We’ll have the ECB decision on monetary policy of course, but the ECB President Draghi has taken any excitement out of this by committing to a policy path regardless of any economic reality.
  • The Bank of England has already done its rate rise for this year on August 2 when the base rate was increased from 0.50 percent to 0.75 percent, so today, there is little chance of anything interesting coming out there either.
  • Turkey’s Monetary Policy Committee has increased the one week repo auction rate from 17.75 percent to 24 percent. Recent developments regarding the inflation outlook point to significant risks to price stability. Price increases have shown a generalized pattern across subsectors, reflecting the movements in exchange rates. Deterioration in the pricing behavior continues to pose upside risks on the inflation outlook, despite weaker domestic demand conditions. The Turkish lira strengthened somewhat on the news.

Besides that, the Turkish government has banned all property transactions in anything other than Turkish lira and has said that any existing contract in other currencies like the dollar or the euro will be re-denominated into Turkish lira in 30 days.

Meanwhile, Turkey’s President Erdogan has attacked today the central bank for continuously missing inflation targets just 2 hours before monetary policy makers announce their interest rates decision. While bashing the bank, Erdogan repeated his unorthodox theory on the relationship between interest rates and inflation, saying that rate hikes only lead to faster price gains.

Most economists and central bankers around the world operate under the assumption that raising borrowing costs would slow demand and lower inflation.

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

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The Wall Street Journal reported that Treasury Secretary Steven Mnuchin has invited China for a fresh round of trade talks trying to avoid have to burden U.S. consumers with ever more tariffs or higher taxes.
trade, tariffs, business, trump
Thursday, 13 September 2018 08:11 AM
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