For millions of American consumers, the Trump administration's trade war with China is about to get personal.
President Trump's decision Monday to slap 10 percent tariffs on another $200 billion in Chinese imports starting September 24 ensures shoppers all over the country will face higher prices on everything from air conditioners to lamps. The move subjects roughly half of Chinese goods coming into the U.S. to import taxes that in many cases will be passed along to consumers.
And it could soon get worse. Trump pledged to dial up the tariffs even further — imposing duties on all Chinese imports — if Beijing retaliates for the latest escalation; and the Chinese government on Tuesday said it will respond immediately. Either way, the administration will jack up the tariffs to 25 percent at the end of the year.
Monday's move marks the beginning of a new phase in a trade war that for many Americans so far has remained confined to headlines. Only 1 percent of the Trump administration's initial round of tariffs on $50 billion of Chinese imports fell on consumer goods. By contrast, nearly a quarter of the new levies hit consumer goods, as shown by this chart from the Peterson Institute for International Economics that examines the administration's original proposal for taxing the additional $200 billion in imports:
This chart breaks down those targeted goods by category and amount:
Previewing the impending consumer pain last week, we highlighted Apple’s redesigned smartwatch as one product in line for a price hike as a result of new tariffs. Instead, the device will be a rare exception, one of a handful of Apple products that the administration carved out for exemptions — along with 300 product categories, including blue tooth electronics, car seats for kids and some chemicals, as my colleagues David Lynch and Damian Paletta report. Indeed, as the Cato Institute’s Scott Lincicome notes, the Trump team is excusing roughly $22.6 billion in consumer electronics from the duties:
$22.6B of the $30B in items removed from the tariff list are consumer electronics (iWatches, etc) https://t.co/BfoggPCNU8— Scott Lincicome (@scottlincicome) September 18, 2018
(See the full list of covered products, published by the U.S. Trade Representative, here.)
The ramped-up tariffs bring the tab for the average American family up to $127 a year, according to an analysis cited by the New York Times back in July. That number will climb to $270 if Trump imposes tariffs on all Chinese imports. For context, the Republican tax cut raises the take-home pay of middle-income households by an average of $930, according to an estimate by the Tax Policy Center. Perhaps no surprise, then, that while Americans narrowly disapprove of the tax overhaul, 61 percent give Trump a thumbs-down on his handling of trade negotiations, according to a poll last month by The Associated Press-NORC Center for Public Affairs Research.
But Trump himself continues to present a misunderstanding of how tariffs work. From David and Damian: “At the White House, Trump wrongly said that 'China is now paying us billions of dollars in tariffs' and he celebrated the Treasury Department collecting 'tremendous amounts of money, which is great for our country.' In fact, tariffs are taxes that are paid by Americans who import goods from abroad. Through the end of August, the administration had collected nearly $22 billion in revenue because of its new tariffs, according to the nonpartisan Tax Foundation.”
The experience of the first tariffs Trump imposed this year help illustrate the point. As Josh Boak of the Associated Press writes: “After Trump announced tariffs on washing machines toward the start of 2018, the price for laundry equipment shot up 16 percent between February and May, according to an analysis by Mark Perry, an economics professor at the Flint campus of the University of Michigan and a scholar at the American Enterprise Institute, a conservative think tank.”
Business groups long opposed to Trump's tariffs swiftly condemned the announcement. One coalition — the recently-formed Tariffs Hurt the Heartland — signaled it will attempt to make popular antipathy toward the trade war a voting issue. “While we agree that there are issues that need to be addressed with trading partners, we also think that taxing American families and slowing economic growth is not the solution,” the group said in a statement. “Together, we will ensure that Washington understands the real-life consequences of tariffs for communities across the country.”
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— Talks in doubt. The Washington Post's Danielle Paquette: ""China’s vice premier, Liu He, was expected to visit Washington next week to restart negotiations with Treasury Secretary Steven Mnuchin, but analysts say the $200 billion development likely knocked that meeting off the table. Fang Xinghai, vice chairman of China’s securities regulator, said at a forum in Tianjin on Tuesday that Trump’s tactics have 'poisoned' the dealmaking atmosphere. Trump’s announcement landed in China on Sept. 18, a day considered the start of Japanese aggression 87 years ago and an anniversary some Chinese see as an informal day of national humiliation."
Chinese retaliatory options dwindle. NYT's Keith Bradsher: "China’s tit-for-tat responses have so far failed to thwart Mr. Trump’s trade offensive, and with the White House amping up the fight again, Chinese leaders aren’t sure how to respond... China doesn’t import nearly enough from the United States to target $200 billion in American goods. But China’s leaders feel they can’t back down... Some hard-liners want a more aggressive stance. Lou Jiwei, who retired as finance minister in 2016 but is still the head of the country’s social security fund, suggested on Sunday that China could deliberately disrupt American companies’ supply chains by halting the export of crucial components mostly made in China. But Chinese trade experts dismiss that idea as impractical and not the government’s position."
Jack Ma: Fight could last 20 years. Reuters's Cate Cadell: "Alibaba chairman Jack Ma said on Tuesday that trade frictions between the United States and China could last for two decades and would be 'a mess' for all parties involved, citing weak trade rules... Ma said trade tensions would likely impact Chinese and foreign companies immediately and negatively. He predicted that Chinese businesses would move production to other countries in the medium-term to get around the tariffs."
Tariffs push China toward advanced manufacturing. WSJ's Liza Lin and Dan Strumpf: “There is an unintended consequence of the White House’s trade battle with China: Companies in the Pearl River Delta, the center of China’s manufacturing might, are accelerating toward making higher-quality products to compete against American goods. ... After building its economy on a mountain of inexpensive exports, from socks to toys to steel, China has been on a mission to upgrade its output. Over the past few years, Beijing has embarked on a campaign to ship low-skill factory work out of the country and build an economy that uses advanced manufacturing techniques to produce high-value products. U.S. tariffs promise to make selling low-cost goods to American consumers less profitable. Companies as a result are rethinking their operations and products, while the government is offering more incentives to help the transition along.”
— EU seeks WTO revamp. Bloomberg's Jonathan Stearns: "The European Union outlined ways to bolster the World Trade Organization in a bid to keep [Trump] committed to the global commercial order that America helped shape after World War II. EU Trade Commissioner Cecilia Malmstrom presented a 'concept paper' aimed at strengthening WTO rules against trade-distorting subsidies, averting a deadlock in the dispute-settlement system of the organization and enhancing its monitoring role. The bloc plans to share the ideas with trade partners at a Sept. 20 meeting in Geneva being organized by Canada."
- “Trump-proof aspects of Manafort deal rankle lawyers.” Politico's Josh Gerstein.
- “Prosecutors say they are ready to sentence Michael Flynn, Trump’s ex-national security adviser.” WSJ's Aruna Viswanatha.
- “Trump lawyer says other women’s claims don’t belong in Zervos lawsuit.” Bloomberg News's Erik Larson.
— Global markets shrug off trade war. Reuters: "Who’s afraid of the big bad trade war? Not world stock markets it seems... European stocks inched toward a third day of gains, futures pointed to a rebound from Wall Street and even copper and the Aussie dollar, which have been highly sensitive to the trade tensions, held firm... One theory for the becalmed reaction was that the $200 billion U.S. move had been largely priced in to markets following weeks of reports and social media speculation."
But U.S. tech stocks dipped: “U.S. stocks fell on Monday led by declines in Apple and Amazon as investors took profits ahead of [Trump’s] expected announcement of new tariffs... All three major U.S. indexes were lower, with the tech-heavy Nasdaq down the most. ... ‘There’s the overhang of a potential trade war, which is obviously what’s keeping the market suppressed,’ said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York.”
— Kudlow: U.S. is "crushing it": CNBC's Jeff Cox: “The U.S. economy is leading the rest of the world by returning to a basic approach of cutting taxes and letting businesses know that government is back on their side, top Trump economic aide Larry Kudlow said Monday. ‘The U.S. is the hottest economy in the world today. We're crushing it,’ the former CNBC anchor said in a speech to the Economic Club of New York. ‘Capital is flowing here in huge quantities.’ ... ‘The single biggest story of this year, 2018, the single biggest news story is not a fictionalized version of what goes on in the White House and all the rest of it. The single biggest story is an economic boom that virtually everybody thought impossible,’ Kudlow said. ‘I believe the recent successes are not off-off. They will be continued and sustained because of the policies.’”
— What happened to the “big shorts"? CNBC's Tae Kim and Leslie Picker: “While most investors on Wall Street lost money a decade ago during the depths of the crisis, some investors thrived and earned their place in the annals of financial history. ... They shorted the crisis and made billions. But for many of them, the decade since was not as favorable, in fact, it's been detrimental. Take John Paulson. His assets under management have plummeted by more than three-fourths since the years after the crisis. There's also David Einhorn, whose fund is down more than 25 percent this year with his losing bets against high-flying technology stocks.”
— Clarida sworn-in at Fed. The Wall Street Journal's Nick Timiraos: “Columbia University economist Richard Clarida was sworn in as the Federal Reserve’s vice chairman on Monday, the central bank said in a statement. Mr. Clarida will serve as the No. 2 to Fed Chairman Jerome Powell, who administered the oath of office. Mr. Clarida was nominated to a four-year term as vice chairman in April by [Trump], and the Senate confirmed his nomination in August on a 69-26 vote.”
Mary Daly to bring job market expertise. Bloomberg News's Jeanna Smialek: “Mary Daly will become Federal Reserve Bank of San Francisco President on Oct. 1, bringing with her decades of experience researching job markets and public policy. That could make Daly, whose promotion was announced Friday, an important voice as the Federal Open Market Committee assesses how hot today’s labor market is running and what risks that might pose. Daly’s research has influenced policy makers before (former Chair Janet Yellen used to quote her wage studies), and her CV hosts papers that zero in on workforce-relevant issues including inequality, education and economic mobility.”
— Gary Cohn: Which bankers broke the law? Reuters's Anna Irrera and Svea Herbst-Bayliss: "Gary Cohn, the former economic adviser to [Trump], gave a ringing endorsement of Wall Street bankers on Monday, arguing that borrowers were just as responsible for the 2007-2009 financial crisis as lenders and ridiculing rules intended to make the system stronger in its aftermath... Defending his fellow bankers, who are often blamed for causing and worsening the crisis, Cohn said borrowers played a hand in their financial disasters as well. 'Who broke the law? I just want to know who you think broke the law,' said Cohn. 'Was the waitress in Las Vegas who had six houses leveraged at 100 percent with no income, was she reckless and stupid? Or was the banker reckless and stupid?'"
— Wall Street salaries rise. The Associated Press's David Klepper: “Salaries on Wall Street rose last year to their highest level since the 2008 financial crisis, according to a report issued Monday by New York state Comptroller Thomas DiNapoli. The report puts the average salary in New York City’s securities industry in 2017 at $422,500, a 13 percent increase over the year before the highest since 2008. ‘Wall Street has profited every year since the end of the recession in 2009, and compensation last year reached its highest point since the financial crisis,’ said DiNapoli, a Democrat. ‘The industry is on track for another good year absent a major setback later in the year.’”
— Douglas Durst wants to soak the rich. The Washington Post's Heather Long: “When U.S. government debt topped a trillion dollars for the first time in the early 1980s, New York real estate magnate Seymour Durst sent every member of Congress a holiday card that said: ‘Happy New Year! Your share of the federal debt is $5,000.’ When lawmakers refused to act, Durst went further, putting up the National Debt Clock in 1989 on a building he owned just off New York City’s bustling Times Square. ... Seymour’s normally private son, Douglas Durst, manages the National Debt Clock and the family’s real estate empire now. He felt compelled to speak out after what he calls the ‘worst months’ he’s ever seen for fiscal policy. Douglas has a message for Congress: Tax the rich more. ‘I support higher taxes on people like me,’ said Douglas in an interview from his office in midtown Manhattan with sweeping views of the city. ‘I think America has more of a revenue problem than a spending problem.’”
Kudlow: The problem is spending. During his Monday appearance at the New York Economic Club, Kudlow said tax cuts aren't to blame for the rising deficit: “The gap is principally spending too much,” Kudlow said, per the WSJ. “We have to be tougher on spending. People are quick to blame deficits on tax cuts, but I don’t buy that,” he said, adding anticipates deficits of 4% to 5% of the nation’s GDP, and “it’s not a catastrophe.”
— Facebook sought data from financial firms. WSJ's AnnaMaria Andriotis and Emily Glazer: “Facebook Inc. has been under scrutiny for months over its handling of personal data, but it has been haggling with financial firms over its access to sensitive financial data for years. As recently as last year, the social-media company pressed financial firms for the ability to use customer data flowing through its Messenger platform for a range of purposes, including advertising, according to people familiar with the matter and documents reviewed by The Wall Street Journal. Concerned about privacy, several firms negotiated bespoke agreements that limited how Facebook could use any financial information that would pass through its servers. The negotiations highlight a dilemma facing Facebook as it balances its need for detailed user data to better target advertisements and increase user engagement with concerns about how best to handle users’ most sensitive personal information.”
— UPS to hire for holidays. Reuters: “United Parcel Service Inc would hire about 100,000 temporary employees for the crucial holiday season, up about 5 percent from a year earlier, the world’s biggest package delivery company said on Monday. Package delivery companies and retailers have increased their seasonal hiring this year, to cater to the e-commerce sector that is expecting heavy shipping volumes, as shoppers spend more buoyed by a strong economy and labor market.”
— Collins to stay on ballot. The Post's Mike DeBonis: “Rep. Chris Collins (R-N.Y.), under federal indictment for insider trading and lying to investigators, will remain on the ballot in November, his attorney said Monday, reversing Collins’s initial decision to suspend his campaign for reelection. That is a scenario that Republican Party officials had hoped to avoid. While New York’s 27th Congressional District is heavily Republican, Democrats believe that with Collins on the ballot, they have an outside chance of claiming the seat in November as they fight to retake the House majority. For weeks, state Republican officials explored finding a way for Collins to vacate the general election ballot and replace him with an untainted GOP candidate, but under New York state law there are scant options for a primary winner to spurn his party’s nomination. Short of death or moving out of state, Collins would have had to accept the Republican nomination for another state office.”
- Senate Banking Committee hearing on fintech.
- The Heritage Foundation hosts an event on “free market fairness” on Thursday.
- The Tax Policy Center organizes a discussion on “costs and benefits of tax regulations” on Thursday.
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