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Trump's 'Reciprocal Tax' Will Eventually Hit Low-Income Consumers

Trump's 'Reciprocal Tax' Will Eventually Hit Low-Income Consumers
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Tuesday, 13 February 2018 08:01 AM Current | Bio | Archive

President Donald Trump, who has already raised taxes, albeit not directly, on the U.S. consumer on January 22 when steep tariffs on imports of washing machines and solar energy cells and panels were put in place, is vowing to raise taxes on the U.S. consumer again, albeit, again not directly.

At the end of 2017, it also became clear that the new rules would cause expatriate Americans to face unexpected tax bills on their overseas business interests under repatriation rules Congress designed to persuade the likes of Apple and Google to bring back to the U.S. profits they had accumulated in lower taxed countries.

President Trump has vowed a “Reciprocal Tax” on imported goods from high-tariff countries, which, if it should be applied would undoubtedly risk raising tensions with key U.S. trading partners.

Anyway, so far, details have not been given yet but should be expected over the coming days and months.

With what we know at this moment, this sort of tax might not require Congressional approval. The president can tax on the trade tariffs without Congressional approval, although a proper tax increase of this nature probably would require legislative agreement.

For investors it’s certainly worth for taking note that, generally speaking, this is a tax that will hit low income consumers, although, unless this is on a large scale, the impact on the growing U.S. fiscal deficit will be limited.

In simple words, we will have to wait and see what comes out.

The National Federation of Independent Businesses (NFIB) small business opinion poll of sentiment is due out today. This is a sentiment survey, and it should be treated with all the reverence that such surveys are due, which means in a very limited way.

However, this is also a survey that has shown to exhibit political bias in the past. The NFIB is a lobbying organization after all. There is therefore an interesting question as to how small businesses in America are feeling politically at the moment.

Besides that, it will be interesting to see if the NFIB optimism index has bounced back from its sharp fall in December on a falloff in confidence and plans to draw down inventories. Markets’ call for January is 105.5 vs. December's 104.9.

Before we will get tomorrow, Wednesday the always important U.S. consumer price index (CPI) together with the core CPI, and which are now more important than most of the time, this in context of where interest rates could be headed, which includes of course the question of how many times the Federal Reserve could raise the Fed funds rate this year, will it be 3 or 4 times?

In the meantime over in the UK we just got consumer price inflation (CPI) that came in unchanged at 3 percent year-over-year and hereby remains near a 5-year high and producer price inflation (PPI), which covers factory gate prices for goods produced by the UK manufacturers (output prices) that increased 2.8 percent year-on-year in January, below the 3.3 percent increase in December and market forecasts of 3 percent. It is the lowest output price inflation since November of 2016 

Producer price inflation (PPI) tells us about the pricing power of companies. Company pricing power has been rising amongst the major economies in the last 18 months or so. This is something that might get the foreign exchange markets a little bit excited, although as the Bank of England expects, consumer price inflation to slow, which it didn’t, it is unlikely to cause the Monetary Policy Committee to deviate from their intended policy path, which is towards “tightening.”

Anyway, the British pound strengthened only a little bit against the dollar on the news.

Besides all this, the International Energy Agency (IEA) informs in its just released monthly report that the United States is on track to become the world’s largest oil producer at a moment that demand is expected to continue to rise, U.S. oil production, in just 3 months to November, crude output increased by a colossal 846,000 barrels per day (kb/d) and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader.

Investors could take note that all the indicators that suggest continued fast growth in the U.S. are in perfect alignment; rising prices leading, after a few months, to more drilling, more completions, more production, and more hedging.

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

 

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HansParisis
For investors it’s certainly worth for taking note that, generally speaking, this is a tax that will hit low income consumers, although, unless this is on a large scale, the impact on the growing U.S. fiscal deficit will be limited. In simple words, we will have to wait and see what comes out.
trump, reciprocal, tax, low, income, consumers
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2018-01-13
Tuesday, 13 February 2018 08:01 AM
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