How “immediate” is immediately? President Donald Trump threatened to "immediately" impose more tariffs or taxes on U.S. consumers if the Chinese retaliated to the last wave of trade tariffs of 10 percent, effective next Monday on $200 billion of Chinese goods, and then increasing the duties to 25 percent, effective January 1.
The Chinese, obviously, retaliated to the last wave of trade tariffs.
So, how soon will Trump tax any U.S. consumer who buys anything that has been partially made in China?
If so, the "real" share of bilateral trade in the economy will fall. That would constitute a Sino-U.S. trade war. It would not be a global trade war. Remember, the rest of the world is very happy trading with China.
The staggered nature of the last set of tariffs, with 10 percent now and 25 percent tariffs on January 1, does suggest that some in the U.S. administration realized that there will be domestic pain from this tariff process.
The fact that Trump has suggested that the Chinese were paying for the tariffs (when every last cent comes from American consumers) suggests that this understanding isn't perhaps a universal understanding.
The tariffs (or taxes) will not hit the consumer before the midterm elections. Even on finished consumer goods it takes 3 to 4 months to work through, and on intermediate goods, it would take potentially longer for the tariff-effects or tax-effects to be felt.
Japan exports to the U.S. rise
Japan’s August trade balance was still in deficit, but this was because of oil imports. Japanese Exports grew 6.6 percent on the year in August, picking up from 3.9 percent in July and above the consensus forecast of 5.7 percent. The pick-up in headline year-on-year growth in Japan's exports in August was largely driven by a strong rebound in demand from the United States, with exports there up 5.3 percent on the year after falling 5.2 percent previously. Japanese exports remain stable as a share of U.S. GDP.
The Japanese did say that there was no effect from U.S. tariffs on China on their trade so far, but of course these data do precede the big tariff hikes.
The start of a second of trade talks between Japan and the U.S. will be delayed until after fresh tariffs imposed on China come into force on Monday.
The muted reaction by emerging markets (EM) to the risks of an escalating Sino-U.S. trade war could signal there are bets that emerging markets (EM) assets may not be hurt significantly by that developing situation, at least not for now.
Nevertheless, investors could do well keeping in mind that the emerging markets are not out of the woods yet and risks remain, but, if the U.S. dollar should weaken over the short to median term, which of course has to be seen first but cannot be excluded, a weaker dollar could bring some relief to the emerging markets.
If a strengthening dollar with rising Fed rates was one of the major reasons for the deep selloff in emerging markets (EM) assets, it stands to reason that any softening in the dollar would help sentiment.
Many FX analysts say the dollar may be close to peaking, but it remains far from clear that this has already happened.
Anyway, Goldman Sachs Asset Management is buying Turkish and Argentinian government debt as it bets on the worst-performing emerging markets to offer some of the more profitable bond trades this year.
Goldman Sachs Asset Management’s rationale: these notes have been “decimated” by investors fleeing a rout in emerging markets even though the two nations’ finances remain robust.
Goldman Asset prefers some emerging-market sovereign bonds over corporate debt. Still, the money manager is shorting some Asian emerging-market currencies against the dollar, betting that the region will likely suffer most from the U.S.’s tariffs on China.
Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
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