- Sino/US tariff guillotine is still hanging over markets.
- Trump is likely to meet with top trade advisers on Thursday to discuss Dec. 15 tariffs.
Reuters sources say that US President Donald Trump is likely to meet with top trade advisers on Thursday to discuss Dec. 15 tariffs on Chinese goods.
The rumours are circulating, yet, it is not as if Trump would not be meeting with colleagues to discuss this – this is a massive chess move that is being considered over tariffs on nearly $150 billion worth of Made in China goods that will rise.
Implications for the US and China on tariff hikes
Trump, the author of "Art of the Deal', knows only too well that should he postpone the tariffs as a sign of goodwill, China will come out victorious in this current trade battle. On the other hand, if he does not, not only will the markets come crashing down on his head at the turn of the year when he needs the US electorate on his side leading into the 2020 Presidential election campaigns, there could be other serious negative ramifications for both sides of the trade spat.
For China, it means sacrificing towns as business relocates operations overseas and probably a much weaker Yuan which could, in turn, encourage capital flight. As for the US, economic data suggests that the trade conflict is hitting America hard, especially in manufacturing and trade. On the other hand, when goods made in China are too high and importers seek goods from other nations instead of China, there is no benefit for the US economy in the taxes otherwise collected from tariffs, (that the Treasury recoups in taxes from tariffs, money that is then available, for example, to be rebated to farmers to compensate for the hit to trade), and thus the economy incurs a deadweight cost that directly hits GDP growth. Indeed, a full-blown currency war will be in the making and that's not good news for US dollar bulls nor the Federal Reserve.
In the best-case scenario for the market, these tariffs will be postponed but at the risk of rising again at some stage down the line in the trade war, if not kept on hold to be used if President Trump gets reelected.
For now, the tariff guillotine is still hanging over markets.
The Aussie and yen, as well as the US dollar and yuan, are the key player in this theme. However, AUD/JPY is the FX market's risk barometer and one to watch/trade as things develop:
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