Let’s see, where are we in the Trump tariff saga? After the White House increased tariffs on Chinese imports five times in the space of nine weeks, we then got a “pause” and an exemption on consumer electronics products – before the latest development.
Namely, the White House yesterday said that the exemption, which covers all Apple products, was only a temporary one, lasting 1-2 months. However, there are three reasons why this is exceedingly unlikely to be true …
Your series recap
- February 1: Trump imposes blanket 10% tariffs on all goods imported from China
- February 4: This tariff takes effect
- March 4: Trump increases the tariff to 20%
- March 12: This takes effect
- April 2: Trump adds a further 34%; China matches this
- April 7: Trump threatens a further 50% increase if China doesn’t cancel matching tariffs
- April 9: Trump increases Chinese tariffs to 104%; China matches this
- Later the same day: Trump increases the tariff to 145%
- April 12: Trump exempts product categories covering all Apple products
- April 13: Commerce Secretary says this is only a pause for 1-2 months
Two solid reasons Apple tariffs won’t be reapplied
Right in the middle of that timeline was when I suggested Apple products were likely to be exempted, as did indeed happen, and there are three reasons that is exceedingly unlikely to change.
First, the escalation we have seen is clearly unsustainable. Every time Apple announces an increase to US tariffs on Chinese products, China responds with a matching tariff on US products. So far Trump has gone from 10% to 20% to 34% to 104% to 145%, and it’s clear that there would be no end to this endless tit-for-tat even if Trump were to eventually hit 1,000% or more. This is the welcoming lecture in the Why Tariffs Don’t Work 101 class.
Second, the impact on both the US economy and the global economy has already been devastating. It’s not just what has happened, but the sheer unpredictability of US economic policy. It’s impossible for businesses to make future plans in an environment in which the rules can be dramatically changed on a weekly basis. Companies need to plan their production schedules months in advance, and plan capital expenditure like new plant years in advance; that’s simply not possible in such a turbulent economy. Above all, what is needed to begin undoing the economic damage is stability.
And a crucial third reason
Third, and most important of all, the impact on the US bond market – which clearly pointed to a path into a full-scale US recession.
Loss of confidence in the US economy led to a dramatic sell-off of Treasury bonds. In order to counter that, the US government has been forced to increase the yield (interest rate) on these, which has a knock-on effect on the rest of the market, making borrowing more expensive for consumers and businesses alike.
A sharp rise in credit costs is the quickest way into a recession, and even Trump had to admit that it was the bond sell-off which forced him to “pause” tariff increases.
There has been a suggestion online that Canadian Prime Minister Mark Carney was instrumental in coordinating a bond sell-off with the governments of the European Union and Japan, in order to force Trump’s hand. As Snopes reports, the main source of this suggestion is a shock-jock with a reputation for conspiracy theories, so I don’t personally put much stock in it.
But planned or organic doesn’t much matter: the effect is the same. Each time Trump tries to re-impose tariffs, that will reduce confidence in the US economy, which will result in further bond sales, which will push up interest rates, which will further damage the US economy. It’s a downward spiral with no escape bar abandoning the policy which caused it in the first place.
Trump’s threats will either quietly go away, or he’ll find a face-saving reason for changing course.
Photo by Maxim Hopman on Unsplash
FTC: We use income earning auto affiliate links. More.
