June was the first month in which the escalation of tariffs on Chinese goods imported into the US increased from 10% to 25%. This rise in tariffs impacted $200 billion worth of Chinese goods with Donald Trump also announcing a further increase which will begin in September. The initial increase in tariffs was aimed at industrial components but the increase which will become effective in September will impact $300 billion worth of Chinese consumer goods.
The real cost of tariff increases
Even though Chinese imports were down by 31%, across the field of goods impacted by the June tariff rise, US businesses paid an additional $2.4 billion in tariffs compared to the same period last year. The fact this is a figure for one month is breathtaking to say the least especially when you bear in mind the worst is yet to come. We know that many US businesses have been forced to put up their prices while experiencing a dramatic fall in sales. Certainly not the road to economic growth!
Worse still to come
We already know that an additional 10% tariff will be placed upon $300 billion worth of Chinese goods imported into the US from September. These are consumer goods which are traditionally very popular around the Thanksgiving period. This tariff increase will hit US businesses very hard as they will need to increase prices to cover their costs. As many US businesses depend upon the Thanksgiving period to bump-up their profits, the short to medium term outlook for the US economy is not good.
Chinese exports
Over the last 12 months there has been a fall of $21 billion in goods imported from China subjected to the recent tariff increase. On the flipside of the coin, there has been a reduction of $25 billion in US exports to China which are susceptible to increased Chinese tariffs. Since the beginning of the trade war back in 2018, US buyers have paid a staggering $27 billion in additional tariffs. If Donald Trump is playing a high-risk game of poker then he certainly has some bottle!
Who will blink first?
Donald Trump has a reputation for taking negotiations to the very edge of the precipice before pulling back. We have seen this with his pervious high-risk strategies and the ongoing tariff war with China could just be an extension of this approach. In reality, it is likely that China will blink before Donald Trump as he continues his policy of “US comes first” on which he stood for president. However, what if reduced imports lead to job losses, before the US can fill the void or Chinese trade negotiations are completed?
This really is turning into a game of high-risk poker. Donald Trump appears well-positioned on his seat with his eyes wide open while his Chinese counterparts continue to scratch their heads and wonder what will happen next. The US stock market is finally starting to take fright of the significant increase in tariffs leading to reduced imports, US sales and profitability. Will Donald Trump be forced to backtrack on his tariff threat? Will the Chinese authorities take a more balanced approach? Will the US stock market force Donald Trump’s government into rethinking this high-risk policy?
Time will tell…………..