This I Did Not Expect!

While I’ve expressed serious concern over the extent to which tariffs will continue to play a roll in U.S./rest-of-the-world trade relations going forward, this I did not expect:

From CNBC this morning:

President Donald Trump said that tariffs on $200 billion of Chinese goods will increase to 25% on Sunday, despite repeated claims by the administration that trade talks with Beijing were going well. 

The tariff rate on those goods was originally set at 10%. Trump had originally threatened to increase the tariffs at the start of the year, but postponed that decision after China and the US agreed to sit down for trade talks.

In addition, Trump threatened to impose 25% tariffs on an additional $325 billion of Chinese goods “shortly.” 

Clearly, something’s gone awry in the trade talks!

I’ve stated recently that the stock market needs to sell off markedly to get the powers-that-be attention. In that a selloff would be the apt response (needs to be big!) over the coming days, the timing is good, as we still don’t have a trade deal. 

I have no doubt that the President’s bold move is an 11th-hour ploy to either extract more from a deal, or it’s in response to what I’m guessing is China’s unwillingness to agree to a deal that does not include the cancelling of all of the tit-for-tat tariffs. I’m guessing it’s more the latter.

Ironically, China, the majority of Republican politicians and the stock market are on the same page on this one; the stock market being the opinion I believe the President is most concerned with. Therefore, if I’m right, Trump is about to find himself in a most uncomfortable position, one that he apparently did not anticipate.

If his tweet this morning truly reflects his understanding of tariffs and economics, and, most rudimentary, who even pays the tariffs, he might exhibit a bit of dangerous stubbornness as markets adjust. Ultimately, however, given the economic, and political, risk of today’s move, I suspect he’ll come around soon enough; I guarantee you, his advisers (save for Lighthizer and Navarro) are scrambling, and pleading, at the moment:

With all due respect, the President simply has this one entirely wrong, China has not been paying tariffs; that’s simply not how it works: Importers — in this case U.S. importers (ultimately their customers [per the second quote below] as they pass through the profit-killing tax) — pay tariffs.

Here’s from the Tax Policy Institute:

“… if the US imposes a tariff on Chinese televisions, the duty is paid to the US Customs and Border Protection Service at the border by a US broker representing a US importer, say, Costco.

The Chinese government pays nothing, just as the US government pays no tax to Canada for that nation’s tariffs on imported dairy products.”

Here’s from Investors Business Daily:   emphasis mine…

“Who Pays A Tariff?

When President Trump imposed tariffs of 10% on $200 billion worth of Chinese imports in September 2018, Walmart (WMT) and other retailers announced that the tariffs would result in some combination of higher prices or lower profits.

Whoever imports a product must pay any related tariff. Bicycles built in China were among the products on the Trump tariff list of $200 billion in imports. A 10% tariff on a bike with a wholesale cost of $60 would add $6 to Walmart’s cost of importing that bike.

Yet who ultimately pays the tariff cost is more complicated. Walmart could pay $3 of the $6 cost and pass half of it on to customers, whose price would rise by $3. In that case, Walmart profit shrinks and customers are left with a thinner wallet.”

Stay tuned…


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