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More shots fired over trade

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US President Trump once again prepared to lower the yoke of additional taxation onto the shoulders of US consumers. The US published a list of another USD 200bn of goods partially made in China that the US intends to tax, with a 10% tariff. China has said it would retaliate.
  • Publishing a list is not the same thing as raising taxes. This might be "art of the deal" negotiation (if something so muddled could be called "art"). Practically taxes could not be levied before September, perhaps not before November. The lower US tax rate (at 10%) will reduce the impact.
  • This will hurt equities more than economies. The reality of taxes may matter less than the threat of US isolationism. Companies with US operations that cannot easily be moved out of the US face the risk of having part of their production cut off from the global trading system.
  • In the second quarter, real trade was stable or rising as a share of real GDP (so not a trade war). If these taxes are actually imposed, and assuming an equivalent response, the risk of a US trade war with the rest of the world rises.