Tags: trade | trump | tariffs | taxes | american | businesses

Trump Trade Tariffs Are Slowly Taxing American Businesses

Trump Trade Tariffs Are Slowly Taxing American Businesses
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Thursday, 19 April 2018 11:18 AM Current | Bio | Archive

The Federal Reserve’s “Beige Book,” with economic anecdotes in all the districts of the U.S., was published yesterday.

Trade seems to be on the collective minds of American businesses. The word “tariff” appeared no less than 36 times in the Fed report.

President Donald Trump’s trade "taxes" are not overall especially popular with the U.S. business community since I believe the trade "taxes" are being passed on in the form of higher prices to U.S. companies and threaten U.S. jobs.

For example, to quote only one mention, the report reads: “… Builders continued to note rising prices for construction materials as well as labor and noted concerns about a potential trade war. Contacts cited double-digit price hikes for lumber and drywall and expressed concern for steel and reinforced concrete…”

The uncertainty created by the trade taxes was also emphasized. The economic cost of the trade taxes will always outweigh the economic benefit of the new tariffs.

Aside from the increase in taxes, the tone of the report was positive, and the economic outlook remains generally strong.

From the European Union (EU), we got the release of current account data for 2017.

In 2017, the United States was the EU's largest partner for exports (20 percent of total extra-EU exports) and second largest for EU imports (14 percent of total extra-EU imports), after China (20 percent). The EU trade surplus with the United States has reached 120 billion euro or about $149 billion in 2017. The most exported product from the EU to the United States was “motor cars and vehicles”, and the most imported product from the United States was “aircraft and associated equipment.”

Normally this is something international investors would not pay very much attention to, but the renewed focus on trade and mercantilism does create some risk around this at the moment.

In the meantime, Trump and Japanese Prime Minister Shinzō Abe have, after two days of talks at Trump’s resort in Florida, agreed to begin talks on what they called “free, fair and reciprocal” trade.

At the joint news conference, Trump said he and Abe “have agreed to intensify our trade and investment consultations.” When asked for clarification if this meant a bilateral trade deal, both leaders were coy.

Trump said that the U.S. is committed to free, fair and reciprocal — very important word — trade, and America is committed to pursuing a bilateral trading relationship that "benefits both of our great countries." Trump said he was working to reduce the $56.1 billion U.S. trade deficit with Japan by pushing to remove barriers to U.S. exports.

Abe said that while he was aware that the U.S. is interested in a bilateral trade deal, Japan’s position is that the Trans-Pacific Trade Partnership (TPP), which Trump took the U.S. out of last year, “is the best for both countries,” and based on that position Japan shall be dealing with the talks.

In other words, these U.S.-Japan trade talks are not guaranteed at all to be a success.

Besides that, investors could also do well taking note that as Trump and the North Korean leader Kim Jong-un discuss North Korea’s nuclear weapons program, Tokyo has raised concerns that Washington might press Kim only on long-range missiles that could hit the mainland United States and not on the short- and medium-range missiles that pose an immediate threat to Japan.

In the UK House of Lords, which is the upper house of the Parliament of the United Kingdom, Prime Minister Theresa May has suffered big defeats on her flagship Brexit legislation, which is the UK’s EU withdrawal bill, when she lost by a majority of 123 on an amendment forcing ministers to explore the option of staying in the European Union (EU) customs union.

This is important for long-term investors, not for traders, as it could perhaps help to further build the hope a soft and gentle Brexit still remaining possible.

Finally, New York Fed President William Dudley said the Fed will likely raise interest rates to a “slightly restrictive” setting in the years ahead as unemployment falls and inflation ticks higher.

Meanwhile, the probability of four Fed rate hikes this year hit a new high. The market-implied probability of 4 or more hikes is now about 1 in 3. Still, 3 rate increases are seen as more likely, but that right tail is getting fatter as stocks continue to rally.

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

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Trade does seem to be on the collective minds of American businesses. The word “tariff” appeared no less than 36 times in the Federal Reserve’s “Beige Book” with economic anecdotes in all the districts of the U.S.
trade, trump, tariffs, taxes, american, businesses
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2018-18-19
Thursday, 19 April 2018 11:18 AM
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