With Wall Street bracing for an imminent and major escalation of Trump tariffs on China, President Trump may be having second thoughts. The Trump administration has reportedly reached out to Beijing to restart trade talks before imposing a new round of tariffs.
That news gave a boost to the Dow Jones industrial average and S&P 500 index on the stock market today, while the Nasdaq composite slashed losses.
Companies such as Apple (AAPL) and Cisco Systems (CSCO) have said in recent days that they would be hit with the next round of tariffs and prices might have to rise to compensate. Big business lobbying or perhaps the worsening GOP outlook in the midterm elections could have Trump thinking twice about an escalation that could cost jobs and slow the surging economy.
Trump also may be hoping to score a big deal that validates his get-tough trade policy. So far there’s no indication that China is prepared to offer major concessions to avert Trump tariffs. Trump touted a new trade deal with Mexico last month, but that revision of Nafta still hinges on addressing Canada’s concerns.
China Trade War Dove Mnuchin
The new round of trade talks, expected in the next couple of weeks, will be led by Treasury Secretary Steven Mnuchin. That’s hardly a surprise. Mnuchin has sought to avoid tariffs and went so far as to declare that the China trade war was “on hold” in May after China had agreed to buy more U.S. agricultural goods. Trump initially was on board but eventually rejected a deal that may have only made a small dent in the $375 billion goods trade gap with China.
Since then, the China trade war has continued to escalate, with both sides slapping 25% tariffs on $50 billion in imports in July and August and Trump threatening much more. On Friday, he said tariffs on an additional $200 billion in imports could come “very soon.” After that, tariffs on another $267 billion in Chinese goods would be “ready to go on short notice.”
The Trump administration has closed the comment period over proposed 25% tariffs on an additional $200 billion in Chinese imports. UBS economists have said they expect 10% Trump tariffs initially. The full 25% Trump tariffs could cut GDP growth to less than 1% in the fourth quarter, they estimate. After Trump’s comments on Friday, UBS was expecting the worst this week.
The news that the Trump administration is reaching out to China for new talks, not vice versa, makes the future of the China trade war much less clear. This could be just a timing change influenced by the political calendar. Yet it’s possible that the Trump administration is legitimately concerned that a full-scale China trade war could cause serious economic damage without bringing Beijing to its knees.
