President Donald Trump. ABC News/AFP/Getty.
President Donald Trump has increased tariffs on China to 125% but has suspended most other retaliatory tariffs for 90 days, causing a major market rally. ABC News. Trump said that people were getting "yippy" and that was a motivation for pulling the retaliatory tariffs. some tariffs still remain, most notably the ones on China, but a baseline 10% tariff rate on other countries has remained in effect. The market had not reacted well to the tariff announcements, but much of the losses were offset by gains after Trump's announcement. Negotiations with many of the nations affected by the tariffs will likely begin, though it is very unclear what will happen with China, who imposed their own tariffs on the United States in a tit for tat fashion.
My Comment:
I didn't really comment on the tariffs before today because I knew there wasn't much of a point. There was a lot of hysteria and gnashing of teeth about the tariffs and I knew there wasn't really too much I could do to convince people that this was the most likely outcome of these tariffs. But I figured something like this would happen.
Why? It absolutely stuns me that people simply don't know Trump's negotiation style by now. I mean, he wrote a book about it in 1987 and you can figure out that Trump's still following those negotiation tactics. Trump shot for the moon with tariffs so he could negotiate with the countries he believes are screwing us over. He did the same thing during his first term so it baffles me that there are so many people on both sides that fundamentally didn't understand what Trump was doing.
He's also very obviously using the carrot and stick approach. China, which responded to tariffs with tariffs of their own, is getting punished. The rest of the world that didn't do so? They are getting their rates reduced to 10% and they will be able to further negotiate with Trump, to perhaps get that rate reduced or removed entirely. Countries like Japan, Taiwan (deal with it China, Taiwan is a country) and South Korea will likely get a very good deal from Trump, while China is going to continue to feel the pain.
I'd also say that the way Trump did this was pretty smart. If he had just slapped a 10% tariff across the board and the extreme tariffs on China, we would have seen the same market disruption we saw over the past week, but Trump would have had no way to back down to recover the markets after they got spooked. By going even further than that though, he was able to rally the market today and make up for the losses incurred during the announcement. My guess is that was always the plan, though the market overreaction probably advanced the timelines.
I do have to say that I appreciate that Trump told people to invest today. I am guessing a lot of people got rich because Trump said that on social media, and though Democrats are whining about it for nonsensical reasons (announcing something publicly on social media is not "insider trading" no matter how much they whine), it was a chance for both market kingpins and regular joes to make a quick buck. I only wish I had been able to take advantage of it myself.
Of course the real question is what happens next. I am guessing that 90 days is more than enough time for the smart countries to make some kind of deal with Trump and if it isn't, Trump can always extend it. I think those deals will be made quickly, with non-China Asian countries being first in line. I am guessing they will be mutually beneficial and good news for everyone.
China is an open question. They seem determined to try and save face and be seen as not making a deal with Trump. I think they will be in serious trouble though. They aren't able to deal with these levels of tariffs and don't really have any new customers that will give them any slack either. They are likely to break at some point and cut a deal with Trump, though it may take them awhile to do so.
Finally, I'm not expecting all that much in terms of economic impact of these tariffs, over all. Tariffs will raise prices for Chinese goods, of course, so it will hurt purveyors of Chinese slop, but the rest of the economy will largely be unaffected. Folks will simply buy products from America or other non-China countries.
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