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Who will pay for Trump's consumer tax?

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US President Trump announced a staggered increase in US consumer taxes. A 10% tax on goods partially made in China now, a 25% tax after the year-end orgy of consumer spending. It will take some months for the tax to work down supply chains.
  • The burden of this tax will likely hit lower income US consumers. Trump threatened to tax all imports partially made in China if China retaliates. China will probably retaliate. The nuclear option of China selling US Treasuries is not likely at this stage. However, China might fail to appear at a US bond auction or two, to remind the US that the balance of payments is a two-way flow.
  • The tax will slow US growth. Raising taxes normally does slow growth. How soon growth is hit will depend on inventory levels, and the speed with which the tax is passed down supply chains. There may be a fear about "who is next?". Once additional tariffs against China are imposed, there is nothing else about China to tweet. Something else will have to fill the Trump Twitter Feed.
  • There is little else to occupy investors' attention today. ECB President Draghi speaks. That qualifies as "little else".