President Donald Trump announced on Tuesday morning that he would delay the imposition of impending taxes on a wide range of Chinese-made goods and drive up the stock market.
Just a week ago, financial markets moved in the opposite direction when its government officially designated China as a currency manipulator.
In both cases, the literal implications of policy changes are modest. Instead, it seems the market reaction is to read the tea leaves after Trump's longer-term intentions.
The expulsion of China as a currency manipulator had no automatic consequences for politics in Washington or Beijing. It was simply seen as an escalating move and as a sign of heart hardening, an indication that Trump's business fans may not get the much-anticipated recovery of the pre-election commercial war.
Conversely, tariff delays for some tariff products by a few months do not have a particularly large direct impact on the US economy. Instead, equities rose largely as a sign that the earlier signs of escalation in the trade negotiations had been misunderstood. Trump seems to continue to be bullish and nervous, suggesting that global financial markets do not like trade confrontation. This gives investors reason to believe that Trump will not push the trade war to its limits and bring the markets skyrocketing.
The fact that Trump has come down in the midst of increasing international attention for escalating protests and policies in Hong Kong is giving Chinese leaders a timely propaganda boost. Critical, however, is that nothing has actually been resolved in the vast US-China trade dispute. Trump blinked only slightly in a mutually damaging conflict that has no obvious endpoint.
Trump Delays Tax on Consumer Products Made in China
Last year, the Trump government introduced a new 10 percent tax on many categories of Chinese-made goods.
The list was carefully crafted to try to focus primarily on things sold to companies, not products that a normal consumer would buy in stores, as the administration minimizes the sticker shock to American consumers and wanted to exert pressure on Chinese companies at the same time. After some delays, Trump raised that tariff to 25 percent in the spring and threatened with a new 10 percent tax on the rest of China's imports.
This new tax was due to come into effect on September 1, but today the US Commercial Office announced that there was a delay for "certain items … such as cell phones, laptops, video game consoles, until December 15 Toys, computer monitors and certain footwear and clothing. "
Looking at the complete list, it is basically an attempt to exempt ordinary consumer goods from taxes. This includes everything from iPhones to "turntables that are not operated with coins or tokens but with speakers" (ie a turntable that you can buy for your home but not a jukebox), baby monitors, watch straps, violins, Sleeping bags, badminton nets, lighters and diapers. There is a list of products with fares that will apply from September and will mainly consist of food and agricultural products.
The official reason for the delay in the USTR is that "certain products are removed from the Customs List for reasons of health, safety, national security and other factors and do not incur any additional 10% duty."
The unfortunate habit of the Trump era is that government officials tell only incidental lies about public order behavior. Trump was obviously worried about the loss of political support from the farmers. Therefore, he sticks to the tariffs on Chinese agricultural products because that helps the farmers. But he shifts tariffs on other consumer goods late into the year, so retailers can survive the critical Christmas shopping season with no price hikes.
In the larger development of the US economy, a 10 percent tax on Chinese imports from 1 September and a 10 percent tax on Chinese imports from 15 December are not material. The real question is where and why this policy of trade confrontation is going.
Nobody really knows what Trump is trying to achieve.
China has been put under a lot of pressure by the tariffs.
Officials have sought to preserve the viability of Chinese exporters by allowing the value of their currency to fall, meaning that everyday Chinese people are compromising their standard of living. In addition, there are dozens of long-standing questions about the fundamental sustainability of the Chinese growth model, which is based on very low levels of household consumption, with huge amounts of money flowing into domestic investment projects – many of which external observers believe are causing bad debt to Chinese banks ,
It is also far from clear that China's great urge to be state-of-the-art completely works. China's efforts to build a domestic competitor for the A320 and Boeing 737 have been subject to delays and massive cost overruns, and the plane still does not seem to be working.
However, China's basic negotiation goals are clear: officials want the US to stop implementing tariffs without China having to make fundamental changes to its economy.
What is less clear are Trump's goals. When it came to the renegotiation of NAFTA, Trump made many great threats and led tons of overheated rhetoric about how catastrophic the original deal was. The agreement that he eventually reached included essentially three changes to the NAFTA framework – one that helps American auto workers, one that helps American pharmaceutical companies, and one that helps American dairy farmers.
Whether you think that's a good thing or a bad one, it's just not that big a deal. And it does not change the framework of NAFTA as a program to facilitate full integration of product markets in the US, Canada and Mexico.
For a while, Trump seemed to be looking for something similar with China – talking a big game, making some concessions to a few specific industries, and declaring victory.
But at other times, Trump seemed to be seriously pushing for China to really dismantle huge parts of its current economic policies. Trump also seemed to want to urge that China reduce the bilateral trade deficit with the United States to zero. Both would be a big challenge, but these are fundamentally different things, and Trump is not unique between them.
Another idea that strikes some national security circles is that the US should not hope to solve it at all. Proponents believe it would be a smart move to "decouple" the two economies from one another so that the US trades less with China.
The partial reduction in tariffs is a glimmer of hope for business people who want Trump to start the trade dispute by proclaiming "win and go home", thereby boosting the market. The rise itself is used by some Trump advisers to enforce the case that he should complete a quick deal and enjoy the resulting enthusiasm for the stock market. But Trump himself has very little insight into what he thinks, and he's far too dishonest for anything he says to have much value anyway.