Randomness and the real world

Daily update

Financial markets seem content to assume US President Trump will default to retreating from their latest trade tax threats. If financial investors want to change their position, they can do so at the touch of a button. In the real world, decisions around factory construction or hiring cannot be reversed so quickly, and the random nature of policy therefore raises real world risks that may have consequences.
This week’s US June consumer price inflation will start to show the effects of trade taxes for consumers, albeit only be a fraction of the eventual impact. Not all goods imported in April and May will have been taxed, and inventory will delay the effects. With trade taxes such a dominant narrative, it is very easy for firms to pass the tax burden on to their customers.
China’s June trade data still had negative export growth to the US, and stronger export growth elsewhere. There must be a suspicion that China is rerouting goods to reduce the tax bill of US consumers. The US administration is concerned about supply rerouting—though whether there are enough US officials left to monitor this is a moot point.
The G20 deputies meet ahead of the finance ministers’ meeting later this week. Do not expect anything meaningful.