with Brent D. Griffiths
But Trump’s call also came with the closest thing he’s offered yet to an admission that American businesses and consumers are bearing the burden of his levies on Chinese goods.
“We are doing this for the Christmas season, just in case some of the tariffs would have an impact on U.S. consumers,” Trump told reporters before traveling to Pennsylvania to deliver a speech. “So far they’ve had virtually none. The only impact has been that we’ve collected almost $60 billion from China, compliments of China. But just in case they might have an impact on people, what we’ve done is we’ve delayed it so they won’t be relevant for the Christmas shopping season.”
The president’s claim that the impact of existing tariffs on American shoppers has been “virtually none” is provably false. Yet the acknowledgment that consumers would be on the hook for tariffs broke new ground for Trump, who has insisted for months, against a consensus among economists and a raft of data, that the Chinese are footing the bill for his trade war.
Trump’s decision exempts roughly half the $300 billion in Chinese goods set to face a 10 percent levy next month. Now, those items — including cellphones, laptops, toys, Christmas tree lights, and nativity ornaments — won’t see the tariff hike until Dec. 15, largely after the Christmas shopping season. A number of products are still in line to face the import tax next month, including food products, glassware, sneakers and suits.
The Trump administration tailored earlier rounds of tariffs — now amounting to 25 percent on $250 billion of Chinese imports — to hit intermediate goods, rather than finished products on store shelves, to try to limit the pinch on American shoppers. The levies raised prices on consumers anyway. “Economics 101 tells you that tariffs are inflationary. Producers are feeling the impact of past tariffs and passing them on to us,” Ryan Sweet, director of real-time economics at Moody’s Analytics, tells me.
The evidence is overwhelming. Consider this chart, from Goldman Sachs back in May:
The bank’s economists wrote that “the costs of US tariffs have fallen entirely on US businesses and households, with no clear reduction in the prices charged by Chinese exporters.” Further, they found, “the effects of the tariffs have spilled over noticeably to the prices charged by US producers competing with tariff-affected goods.”
The findings are backed by the International Monetary Fund, whose researchers have concluded that “tariff revenue collected has been borne almost entirely by U.S. importers … Some of these tariffs have been passed on to U.S. consumers, like those on washing machines, while others have been absorbed by importing firms through lower profit margins.”
Zooming in on individual products facing higher import taxes makes the effects even clearer. “The price of sewing machines, which were hit in September by the original 10 percent tariff rate, have risen 10.3 percent in the 12 months through March,” Reuters reported in the spring. “That is the biggest annual gain since the Labor Department started tracking prices for the appliance in 1997.” Prices for bicycles, which were also targeted, have similarly risen:
White House economic advisor Larry Kudlow last week dismissed suggestions the trade war is taking a bite out of household budgets. “Any consumer impact is very, very small,” he told reporters. But the nonpartisan Tax Foundation estimates a typical family of four will see increased costs of $850 a year from the China tariffs already on the books and face an additional $350 from the levies Trump is partially, and temporarily, delaying.
The administration needs to pay extra care to protect consumers, since their spending has been shoring up the aging, slowing economic expansion. As Sweet notes, business confidence, business investment, capital expenditures, and hiring have all weakened as trade tensions have escalated. GDP growth slowed to 2.1 percent in the second quarter of this year, down sharply from 3.1 percent in the first quarter — but it would have been even worse if strong consumer spending hadn’t helped offset a falloff in business investment.
Trade watchers and economists note that Trump’s decision Tuesday doesn’t remove the threat posed by the trade war with China. “The climbdown over the China tariffs does not mean a trade deal is now near, not least because China's authorities currently face a much bigger problem, namely, the challenge to their legitimacy in Hong Kong, and that will take precedence,” Pantheon Macroeconomics chief economist Ian Shepherdson wrote in a Monday note. “But we can fully understand markets' relief at the lifting of the threat of tariffs on consumer goods just ahead of the holiday shopping season, and the sell-off in Treasuries makes sense too.” In other words, for now, Trump has contained the Grinch with a suspicious resemblance to himself.
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MARKET MOVERS
— Global powerhouses stall.
- The German economy shrank by 0.1 percent in the second quarter, as global trade tensions and auto industry troubles persist, AP's David McHugh reports: "Germany’s economy is facing headwinds as its auto industry, a key employer and pillar of growth, faces challenges adjusting to tougher emissions standards in Europe and China and to technological change. Uncertainty over the terms of Britain’s planned exit from the EU has also weighed on confidence more generally."
- China's economy is weakening, too. per WSJ's Grace Zhu: "China reported a raft of weak economic data, adding to evidence that the world’s second-largest economy is slowing further as it remains locked in a trade war with the U.S. The jobless rate in Chinese cities again rebounded in July to its highest level since regular reporting on the data began, as employers turned cautious. Other key economic readings for the month, including factory production, consumption and property investment, came in much lower than expected."
— Inflation picks up. WSJ's Paul Kiernan: "Inflation accelerated in July as an underlying measure of consumer prices posted its strongest two-month gain since early 2006. The consumer-price index, which measures what Americans pay for items from mutton to motel rooms, rose a seasonally adjusted 0.3% last month from June, the Labor Department said Tuesday. Excluding volatile food and energy, so-called core consumer prices rose 0.3% for a second consecutive month, the strongest two-month gain in more than a decade."
— Mortgage debt hits new record. WSJ's Harriet Torry: "U.S. mortgage debt reached a record in the second quarter, exceeding its 2008 peak as the financial crisis unfolded. Mortgage balances rose by $162 billion in the second quarter to $9.406 trillion, surpassing the high of $9.294 trillion in the third quarter of 2008, the Federal Reserve Bank of New York said Tuesday... 'The big picture is that when you look at mortgages, which is the biggest piece of [household debt], it still looks pretty healthy,' said Michael Feroli, chief U.S. economist at JPMorgan Chase, noting that while household debt has grown, so have incomes."
TRUMP TRACKER
TRADE FLY-AROUND:
— Trump has a "very productive" call with China. Bloomberg's Justin Sink: "Trump said his administration had a 'very productive' call with China and that he thinks Beijing wants to 'do something dramatic' on trade. 'They really would like to make a deal,' Trump said Tuesday before boarding a helicopter in Morristown, New Jersey. He said the call took place on Monday."
— Americans sour on China. Pew Research Center: "Despite periodic, high-level meetings intended to defuse these trade tensions, results of a new Pew Research Center survey indicate Americans believe economic ties between China and the U.S. are poor. And, amid these economic concerns, unfavorable opinions of China have reached a 14-year high. Today, 60% of Americans have an unfavorable opinion of China, up from 47% in 2018 and at the highest level since Pew Research Center began asking the question."
— U.S. businesses are taking down job listings: "The United States had 7.3 million job openings in June, down from a peak of 7.6 million in November, according to the latest Labor Department data. While the decline is modest, economists are concerned hiring could dry up quickly as companies see no end in sight to Trump’s trade war and they look to cut costs," my colleague Heather Long reports.
"The reduction in job openings is also widespread across many industries, signaling how cautious companies are becoming. A decrease in job openings has tended to be a signal of economic trouble, according to Labor Department research. Job openings peaked in April 2007, for example, nine months before the start of the Great Recession."
— Trump threatens to pull out of the WTO: “[Trump threatened on Tuesday (Aug 13) to pull the United States out of the World Trade Organization (WTO) if conditions are not improved,” AFP reports.
“‘We will leave if we have to,’ Trump told a cheering audience of workers at a Shell chemical plant in Pennsylvania. ‘We know that they have been screwing us for years and it's not going to happen again,’ he said.”
POCKET CHANGE
— Companies make plans for Hong Kong operations: “Western companies with large operations in Hong Kong are activating plans for employees to work remotely, and considering how to respond to a variety of possible scenarios, as protests and police actions in the city become more widespread and unpredictable,” the Wall Street Journal’s Frances Yoon reports.
“What started off as peaceful demonstrations against a contentious extradition bill have escalated, with clashes between protesters and police becoming more violent and frequent. Police have fired rounds of tear gas in residential neighborhoods and subway stations, as protesters’ tactics have become more fluid and geographically dispersed. The situation has led many companies to hold employee briefings and circulate memos advising staffers on what to do if they find themselves in danger or can’t travel to work.”
— CBS, Viacom reach merger deal: “The new company will be called ViacomCBS, and Viacom’s CEO, Bob Bakish, will be the CEO of the combined company. Joe Ianiello, who was serving as CBS CEO since last year, will be the chairman of CBS and will be in charge of CBS assets after the merger,” CNBC’s Alex Sherman reports.
“Existing CBS shareholders will own about 61% of the combined company, with Viacom shareholders owning the remaining 39%. Each Viacom shareholder will receive .59625 shares of CBS shares. CBS shares rose 1.5%. Viacom shares rose 1.77%. The combination reunites the two media companies controlled by Sumner Redstone’s National Amusements. Viacom spun off CBS in 2006.”
— Boeing’s woes continue: “Boeing Co. delivered fewer planes in July than in any month for the past decade, furthering the financial blow to the aerospace giant brought by the grounding of its 737 MAX jetliner,” WSJ’s Patrick Thomas and Austen Hufford report.
“Boeing’s deliveries for the year through July totaled 258 planes, down from 417 planes in the same period a year earlier and the smallest number for that time frame since 2007. The 19 planes the Chicago-based company delivered in July was the lowest monthly count since the four deliveries it made in November 2008 during the financial crisis.”
— Pentagon watchdog to probe cloud contract: “The Defense Department’s inspector general has assembled a team of auditors to evaluate the Pentagon’s handling of its largest cloud computing project, a massive contract that could be worth up to $10 billion over 10 years,” my colleague Aaron Gregg reports.
“The process has been dogged by allegations that it is biased in favor of Amazon Web Services since it was unveiled last year. Oracle and IBM have protested the award, arguing that turning to a single company for such an important responsibility is unwise and that the process is rigged in favor of Amazon.” (Amazon founder and CEO Jeff Bezos owns The Washington Post)
— Soda companies push back on sugar taxes: “Pennsylvania has found itself the latest battleground for a national strategy by soda producers aimed at stopping local taxes on their products — not by fighting the cities directly, but by pushing pliant state legislatures to ban any such tax increases statewide,” Politico’s Jeremy B. White reports. “Called ‘preemption’ laws, they’re designed to limit cities from imposing taxes of their own.”
“Perhaps the industry’s most remarkable success has been California, a progressive state in which multiple cities passed their own soda taxes in the wake of Berkeley’s first-in-the-nation law and additional cities were ramping up campaigns. There, the industry used the statewide initiative system as leverage over lawmakers.”
— From a $1 billion sale to a bargain price: “Tumblr, the onetime darling of social media, sold for a whopping $1.1 billion in 2013. On Monday, in perhaps the latest mark of its decline, the site was reportedly bought for just $3 million,” my colleague Rachel Siegel reports.
“Twitter didn’t miss a beat in pointing out that Tumblr’s reported sales price was less than that of this bluefin tuna. BuzzFeed propped up a list of seven condos you can buy in New York for the same price as Tumblr.”
— The coming fight over Epstein’s fortune: “Jeffrey Epstein’s death ended the criminal case against him, but prosecutors can still employ a powerful tool to try to compensate women claiming he sexually abused them: civil forfeiture,” Bloomberg News's David Voreacos and Neil Weinberg report.
“In Epstein’s case, the opaqueness of his finances and, in many cases, the minimal documentary evidence tying Epstein’s accusers to him will complicate matters. There’s also no guarantee that money will be left over for the accusers after Epstein’s creditors are paid.”
MONEY ON THE HILL
— Finance Committee releases report on tax extenders: “The leaders of the Senate Finance Committee issued three summary reports from their internal task forces examining what to do about the perennial problem of temporary tax breaks that need to be extended every few years,” TaxProToday’s Michael Cohn reports.
DAYBOOK
Today:
- Cisco Systems, Macy's, Agilent, Canopy Growth are among the notable companies reporting their earnings, per Kiplinger.
Upcoming:
- Walmart, Alibaba and JCPenney and IHeartMedia are among the notable companies reporting their earnings on Thursday, per Kiplinger.
THE FUNNIES
From Newsday's Matt Davies:
https://t.co/dVoM9aLh0b pic.twitter.com/mD1iYYaY0p
— Matt Davies (@MatttDavies) August 13, 2019
BULL SESSION