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1. The following are excerpts from Jeff Cox's 2 August 2019 news report headlined "Trump’s latest broadside on China raises fear that the trade war is the ‘new status quo’".|
The surprise tariffs President Donald Trump announced Thursday on $300 billion or so of Chinese goods takes the trade dispute between the two countries to a new level, even though in dollar terms it doesn’t amount to a whole lot.
The president’s announcement jolted markets, which had bounced back sharply off Wednesday’s disappointing Fed rate cut only to have their legs cut out from underneath them by news of a heightened trade war.
Trump’s move means that all Chinese goods entering the U.S. will be subject to some sort of duties. While the actual price tag of the latest action is technically just $30 billion, or about 0.14 percentage point of GDP, the psychological damage that could be inflicted comes at an inopportune time.
“The direct impact of these tariffs is smaller than a bread box,” said Bill Adams, senior economist at PNC. “The larger effect is going to be through confidence channels and the effect on capital spending.”
Indeed, if business surveys have been clear about anything it’s that American business is nervous about trade. The closely watched Institute of Supply Management manufacturing survey dipped again in July and is teetering on contraction territory, while the Federal Reserve’s key manufacturing gauge has fallen for consecutive quarters.
Morgan Stanley strategists said the latest round of tariffs, if implemented, would contribute to “slowbalization,” or a continuation of lackluster growth, and could hasten a U.S. recession in as soon as three quarters.
“One key reason: about 68% of the next goods tariffed will be consumer goods and autos/parts, with more potential for immediate impact to the economy,” Morgan Stanley strategist Michael Zezas said in a note...
The economy rose 2.1% in the second quarter, but the internals showed a clear tariff impact. Exports slumped 5.2% for the quarter and nonresidential investment, a key metric for business spending, dropped 0.6% for its worst showing since early 2016...
“Tariffs are affecting the part of the U.S. economy that is most integrated into world trade,” Adams said. “This latest increase in tariffs increases the likelihood that higher trade barriers are the new status quo.”
As for more specific impacts, Adams sees the tariffs raising inflation and lowering disposable income, which increased just 2.5% in the second quarter, its lowest rise in nearly two years.
He also projects a hit to consumption as well as increased margin pressure, particularly for heavy exporters. Q2 earnings season hasn’t been kind to S&P 500 companies that generate more than half their sales outside the U.S., with profits down 13.6% from a year ago.
Inflation could hit sectors such as electronics, clothing, footware and toys and be a credit hit to companies in those sectors along with manufacturing, and apparel and leather, according to Moody’s Investors Service, a credit rating firm. Other sectors that face impact as the trade war escalates include crude oil, transport equipment and semiconductors.
Retaliation from China could come in a number of forms, including tariffs on U.S. goods and pressure on American companies operating there.
“The escalation of trade tensions will increasingly weigh on the global economy and supply chains in an environment of already decelerating growth in the US, the euro area and China,” Elena Duggar, Moody’s associate managing director, said in a statement. “Uncertainty will dampen business investment and trade flows.”
The tariff news comes a day after the Fed met market expectations — and Trump’s demands — by cutting its benchmark interest rate by a quarter percentage point. However, Fed Chairman Jerome Powell’s remarks after the meeting that he didn’t see the move as the beginning of an extended rate cut cycle cascaded through markets and prompted more criticism from the president. (End excerpts)
2. As the election campaigns heat up, Donald Trump is obviously running out of time to wait for China to accede to his demands. His latest tariff move against China is the clearest sign of desperation in his bid to remain another term in office. Using an analogy in my previous post, a psycho is getting increasing impatient after waiting a long time for the local anesthetic to take effect on his victim in the torture chamber.
Without testing for numbness of his victim's gum tissue, the psycho is dragging his victim all the way to the dental chair to extract all his remaining teeth.
3. At first China seemed to be unsure how to deal with the failed business-turned mercurial president. As time goes on, China is becoming more experienced and confident in dealing with Donald Trump after realizing that he is bent on destroying the Chinese economy. China has many ways to hit back at the US such as:
(a) Ban all Chinese tourists to the US.
Spending by Chinese visitors — which doesn't include students — ballooned more than 600% between 2008 and 2016, to nearly $18.9 billion. In 2017, that fell by 1% to $18.8 billion, or about 12% of overall tourism spending.
(b) Ban all Chinese students from studying in "American for-profit education companies" such as the now-defunct Trump University.
Chinese students make up one-third of the total international body in the US and pay significant sums to study at top institutions.
The amount Chinese students and their families contribute to the US economy is estimated to have been $13 billion in 2017-2018, a figure that includes tuition fees and living expenses, according to NAFSA: Association of International Educators.
However, there is growing pressure in the US to place restrictions on foreign students, particularly Chinese, amid tensions between the two countries over a range of issues, most prominently trade.
The US government has been targeting specific groups of students or academics who they feel pose national security risks or are involved in alleged intellectual property theft.
As reported on 8 August 2018 by Politico, at one point during the dinner, Trump noted of an unnamed country that the attendee said was clearly China, “almost every student that comes over to this country is a spy.”
P.S. As the psycho tries to extract all the teeth of his victim in the torture chamber, it is high time for the victim to drag the psycho to the dental chair. An eye for an eye and a tooth for a tooth.