Trump Chickens Out, Delays Trade War Tariffs to Save Holiday Season

-edited

In order to save the holiday season, Trump delayed imposition of his recently-announced trade war escalation.

Trump changed his mind. So, what else is new?

The Wall Street Journal reports U.S. Retreats on Chinese Tariff Threats, Stocks Soar.

The Trump administration abruptly offered China—and U.S. consumers—a reprieve from sweeping tariffs that were poised to hit on Sept. 1, sending stocks sharply higher and raising hopes for reviving stalled-out talks on a trade deal.

The trade talks appeared in jeopardy after the Trump administration threatened Aug. 1 to extend tariffs of 10% to $300 billion in Chinese imports not currently taxed, including many consumer goods for the first time. They would come on top of 25% tariffs already imposed on $250 billion in imports from China.

The office of the U.S. Trade Representative said Tuesday that it will instead delay the new tariffs on many major categories of items, including smartphones, laptop computers, toys and some other items, until Dec. 15. The USTR said some products would be removed from the tariff lists entirely, based on health, safety, national security and other factors. The action came after U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin participated in a call this morning with Chinese counterparts regarding the trade talks, according to a White House official.

The list of excluded items include some of the biggest ticket items facing tariffs. Cellphones and laptops alone represent about $80 billion of trade.

Big Win Coming

A big win is always just around the corner.

Stock Market Reaction

The Dow is up 400 points (1.6%) with the S&P 500 up 50 points (1.8%) and Nasdaq up 47 points (2.2%).

Bond Market Reaction

The bond market reaction is interesting. The 5-year yield is up 7 basis points.

The 10-year yield is up 4 basis points and the 30-year long bond is up a just 1 basis point, a mere 4 basis points from a new record low yield.

Trust the long bond.

Mike "Mish" Shedlock

Comments (27)
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Tony Bennett
Tony Bennett

"The Dow is up 400 points (1.6%) with the S&P 500 up 50 points (1.8%) and Nasdaq up 47 points (2.2%)."

...

It will be interesting to see how long the rally lasts. As we get closer to the Event Horizon the half life of these market saves get compressed.

Weeks? Days? Hours?

thimk
thimk

only 2 positive entries on Trump's score card for me , immigration reform and supreme court picks .

Sechel
Sechel

Trump just looks at the news headlines and the stock market direction to decide. There's no intelligence or grand plan

Mish
Mish

Editor

30-year long bond now flat on the day

njbr
njbr

Bluster, bluff, fold

It's the tactic of all successful negotiators

LB412
LB412

I just went through both the 9/1 and 12/15 lists. There is still a SIGNIFICANT number of consumer items on the 9/1 list.

njbr
njbr

What would the effect on a retailer would the previous few weeks have been?

Last week or so...Damnit, I've got to buy NOW to beat tariffs. Seller says to themselves--hmm, so much desperation.

This morning, that all changes.

So, in that time frame, who sold for a better price, and who bought at a higher price ?

A little example of the difficulty facing business these days.

Casual_Observer
Casual_Observer

Looking in the wrong place. Follow along.

  1. Fed raises interest rates in 2018 and starts tapering
  2. Trump wants lower rates, cheaper money and more "growth" so he slaps tariffs to make the Fed react.
  3. Fed sees odd data and begins suggestions of slowing growth and possibly cutting rates
  4. Trump slaps more tariffs
  5. Fed cuts rates
  6. Trump says maybe more tariffs are coming September 1st
  7. Another Fed rate cut is baked in the cake
  8. Trump backs off from tariffs
  9. (will happen in September or October) - Fed cuts again
  10. Trump removes all tariffs and stock market roars into 2020. Bonds also do well.
  11. Fed holds off any more cuts or increases until 2021

The whole tariff story is about getting rate cuts and increasing growth come 2020 at any cost.

Augustthegreat
Augustthegreat

It’s difficult to understand why Trump decided to stop collecting the billions of dollars that China will be paying the US Treasury.

Carl_R
Carl_R

But, in return, did China relent on their decision to not buy US Ag products?

lol
lol

Christmas season lol,doesn't el presidente understand that the money folks borrow or the checks they receive from the govt to buy Christmas gifts (made in China)all that cash...…..goes straight back to Hop Sing!The billions Americans (borrow) spend at Christmas goes straight to China.Mexico,Charlie in Hanoi!

Herkie
Herkie

What happened to TRADE WARS ARE SO EASY TO WIN? And, he knew that there would be a bumpy road if he went down the trade warpath. Now, he is going to suspend it so people can have a great Christmas? He is seeing that he is touching off artificial inflation for consumers even as he is crashing markets, and finally realizes China is not going to fold to his bluffs. And of course the problem all along was do not even try it unless you are willing to win it because any losses you take will be permanent. We are so fucked.

Borat1
Borat1

China situation is interesting. Western policy-makers basically want and have wanted for decades (via soft power) a liberalised China. But a liberalised China would equate to a giant super China with GDP double or triple the US, over the long-run (**see note 1). I.e. we will see in-effect China as the dominant global power, but the West wouldn't mind this as long as China stays within and upholds the Western created liberal order. This has always been the thinking for the past many decades. But it is an idea that is idealistic. Which is exactly what Liberalism IR theory is, it's an idealistic theory / worldview.

**note 1 (Note that such a large China (double or triple the US over the long-run), as we see in WEF forecasts etc, is based on this premise, the premise of an economically Liberalised free-trading China, those long-run WEF type forecasts are based on convergence theory, which itself is based on the premise that nations converge per capita providing they adhere to free-trade, i.e. emerging markets will grow faster and benefit more from free-trade in zero-sum terms than advanced economies. Liberalism IR states this is fine as it would be 'win / win' as nations idealistically become interconnected to one another and an almost 'world peace' emerges as they converge per capita and international institutions become more and more dominant, i.e. a liberalised / Liberalism IR / Liberal world order maintains)

The dilemma (excluding the fact that Liberalism IR is a highly idealistic approach), is that in the present China since 2008, but in particular since 2012 with the Xi Jingping reign (leader for life in effect), China have been very transparent in saying they do not intend to liberalise thus adhere to the Liberal / Liberalism IR order. Thus raises the dilemma with the West and Western distrust of China. Many in the West still expect or want China to liberalise, if only the West were to continue using international institutions or soft power (which hasn't worked to date), it would work, or so some still argue, mostly influenced by allegiance to Liberalism IR thought, or due to influence from various Western myopic self-interests. The fact that China is no longer interested or intends to Liberalise, and has been incredibly transparent about this in CCP statements, in OBOR, in Made in China 2025, and in their general activities and breaches against the WTO standards etc (WTO is highly ineffective mind-you, knowing people who worked in / with WTO, it takes years to process disputes / cases with the end result most of the time not achieving anything in regards to stop behaviors etc), the reality of today is that it's more in Western interests for a deal not to be acheived. At least geopolitically / in terms of Realism IR.

But domestic politics and domestic elections we see warp / skew that. This decision by Trump admin is but one example. It's no longer in US long-run geopolitical interests to have a trade deal with China. The original list of demands the US sent to China are impossible to agree for China. They require complete structural reforms in the economy of China that politically will be untenable to the CCP (some of the requests are even impossible to police / monitor). Nor is China per their transparent statements and actions going to liberalise, the sooner the West realises this is absolute the better (and the sooner they realise it's based on completely idealistic premises anyhow the better). Many in the Western policy-making (the US in particular) have already identified this. Apparent by the rise in Realism IR thinking we have seen again in the last few years, after decades of hibernation from thought / debate after the collapse of the USSR. But that doesn't prevent it also being in the US (and Western) short-run economic and political interests to turn a semi-blind eye and continue as normal, with weak platitudes of 'future reform' (kicking the can down the road and continuing the already decade long failure policy approach, which benefits the short-term at the cost of the future). This option is naturally supported by self-interested businesses and consumers. Which will win? The short-term myopic interests (that benefits businesses, consumers, etc), or the long-run interests (that benefits the nation geopolitically and macroeconomically in the long-run)? Or is the answer to try and toe-the-line of both, or to see conflict among both? I think what we're seeing are these two divergent interests pushing and pulling both ways, hence the scrambled / confused US approach (and the same applies in other Western nations, confused / ineffectual policy towards China, thus is the China dilemma).

Sechel
Sechel

Since Trump says China is paying, why the need to help American consumers by delaying tariffs?

Expat
Expat

Didn't this Orange Asshole claim that tariffs and trade wars are good for America?? Fuck off, Donald, you're an embarrassment to sentient life everywhere.

Borat1
Borat1

Everyone commenting here has no idea. They're all simply looking at domestic politics. Or only one sphere of finance / econ / IR. Not all three. They're missing the key points / larger picture.