Trump imposes a tariff on remaining $300 billion

This morning Donald Trump tweeted about the constructive conversations about a future trade deal with China as the worlds two largest economies try to ease tensions. 

Donald sounds optimistic about the future Trade Deal, but highlights his frustrations with the failed signing three months ago and the lack of commitment on the part of China to purchase more agriculture products from the USA. 

In addition, China was to address the illegal export of Fentanyl to the USA that is killing Americans every day.  The synthetic opioid which the US Centres for Disease Control and Prevention has blamed for 18,000 fatal overdoses in 2016.

To put urgency on the settlement of this trade war, the U.S. will start to apply a 10% tariff on the remaining $300 billion of products being exported from China to the USA beginning September 1st.  

This is in addition to the existing 25% tariff on the first $250 billion of products. 

Industry groups affected by the import tariffs weighed in quickly after Trump’s announcement, with the US Chamber of Commerce, National Retail Federation, Retail Industry Leaders Association (RILA) and the American Apparel and Footwear Association all condemning the move.

The new tariff “is a direct hit on consumer products and family budgets, plain and simple”, RILA, which counts Apple and Nike as members, said in a statement.

Trump seems optimistic about a settlement and comprehensive trade deal.   He ends in a positive note talking about a brighter future.

Both sides agreed that the meeting in Shanghai was “constructive” and they agreed to hold another round of talks in the US in September.

Trade War

A trade war is not good for the world economy, but it is more threatening to the two economies in dispute. 

Already, there are signs of these trade difficulties throughout the world, particularly in Europe.  

When your entire economy is heavily dependent on trade, an overall slowdown in global commerce caused by tit-for-tat import taxes provokes fear and undermines confidence.

Stock Exchange 

The tariff had an immediate effect on the U.S. stock exchange and on businesses with a strong Chinese presence.  Hundreds of billions of dollars were wiped from the stock exchange today. 

In May of this year, the global stock markets lost over $1 trillion dollars because of the increase of tariffs from 10% to 25%.   

By the end of the trading day, stocks fell sharply upon the announcement; The Dow, S&P 500, and Nasdaq fell 1.1 – 1.2%

  • FedEx fell 4.42%
  • Nike stock declined by 3.72%
  • Caterpillar dropped 3.67%
  • Qualcomm declined by 2.8% due to the reduction of sales from Huawei  
  • The Apple stock swayed 3% and dropped 1.48%.   

The U.S. Economy

Myron Brilliant, the US Chamber of Commerce’s executive vice-president and head of international affairs, said raising tariffs by 10 percent on an additional US$300 billion worth of imports from China “will only inflict greater pain on American businesses, farmers, workers and consumers, and undermine an otherwise strong US economy”.

Most of the remaining U.S. imports not already subject to levies reversed Thursday mornings gains.

The prospect of further Fed rate cuts was enhanced also by data showing a further weakening in the U.S. manufacturing sector. The IHS Markit U.S. manufacturing index fell to its lowest since September 2009 at 50.4%.

This fall IHS Markit chief economist, Chris Williamson opined that “US manufacturing entered into its sharpest downturn since 2009, suggesting the goods-producing sector is on course to act as a significant drag on the economy in the third quarter”. 

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