Taxing times to be an economist

Posted by: Paul Donovan

09 Dec 2019
  • Will US President Trump impose still more taxes on US companies and consumers at the end of this week? The deadline for further taxes on goods partially made in China is looming. The increase in tax revenues to the US Treasury comes solely from US buyers – and mainly from companies, making existing trade taxes a tax on equities.
  • China's exports to the US fell dramatically (down 23%). Whether this is due to rerouting exports via other countries, or being replaced by exports from other countries is not clear. Vietnam, Mexico, Korea and Taiwan have gained market share in tariffed product areas.  Rerouted supply chains still cost American buyers, as they have to pay for their second choice supplier.
  • Trade uncertainty has weakened investment, weakening economic activity. This has caused central banks to put in place some "insurance" easing of policy. That process is largely concluded. Expectations for any new policies from this week's central bank meetings are low.
  • North Korea conducted tests at its long range missile site. Markets are bad at pricing in tail risks like this. US President Trump speculated on staying in office more than two terms. Markets are bad at pricing in tail risks like this.

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