Donald Trump finally got the Fed interest rate cut he wanted, and that the markets expected.
But that was yesterday. In a series of tweets Thursday afternoon, he undercut the rate cut with the announcement of a surprise 10% tariff on Chinese goods, tripping up businesses, investors, and consumers.
In the tweets, Trump claimed that the U.S. thought it had a trade deal three months ago but that China wanted to re-negotiate. He also blamed China for not buying large amounts of agricultural products or stopping the movement of fentanyl into the U.S.
In a third tweet, he announced a “small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China” that would start Sept. 1. That is in addition to $250 billion under a 25% tariff.
Stocks broadly dropped after the news hit.
“I guess it’s small relative to 25% but it’s still a pretty big tariff,” said said Dan North, Euler Hermes chief economist for North America. Trump in May threatened Mexico with a 5% tariff over immigration, half the level he’s now planning.
This particular round of tariffs will target consumer products. According to data from IHS Markit, almost 34% of computers and consumer electronics sold in the U.S. come from China. So do about 45% of clothing and apparel and 25% of all furniture.
“The tariff on this tranche of goods from China will do more damage to the economy than the previous,” North said. “At the moment we think the tariffs in place now are costing families about .4% of their spending, or $700 a year. This is going to approximately double that current amount because it’s more heavily consumer oriented. If the tariffs go through, it will definitely consumers, it will crimp economic growth overall, and it will pressure inflation upwards.”
Some experts think Trump’s rationale for the action might be sound. “There is speculation that the Chinese are in the delay game until the election,” North said. If there is a new president, China might be able to avoid renegotiation.
“China has been stringing negotiations along, and it’s going to get worse,” predicts Juscelino Colares, professor of business law and political science at Case Western Reserve University’s School of Law.
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