The Latest Steps in Trump’s Tariff Tango

Thursday, US President Donald Trump took to the outlet everyone uses to drop foreign policy news these days and sent a series of four tweets targeting China. In them, Trump again claimed China had reneged on a trade deal in May. Additionally, he claimed they failed to follow through on making “big” purchases of US agricultural goods and banning exports of Fentanyl (a dangerous drug). Trump added: “Trade talks are continuing, and during the talks the U.S. will start, on September 1^st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%.” Headlines and breaking news banners immediately flipped into overdrive, warning of another shot in Trump’s “trade war.” But this latest move does nothing to change our view: While they may roil sentiment in the near term, tariffs, as threatened and implemented to date, are simply too small and unsurprising to upend this bull market.

Consider Exhibit 1, which Fisher Investments clients just received in our latest quarterly update. It plots all of Trump’s threatened and implemented tariffs to date—plus trading partners’ retaliatory moves—scaling them relative to world GDP. Note the italicized line four rows up from the bottom on China. This included Trump’s earlier threat to tax the remaining $300 billion in Chinese goods at 25%. This is the same $300 billion Trump now says he will tax at 10%. Hence, today’s move is a) not shocking and b) smaller than we (and, likely, many other investors) had already weighed. Moreover, whether taxed at 10% or 25%, the cumulative impact of tariff payments is less than 0.3% of world GDP—not the multi-trillion dollar shock we think it takes to wallop a bull market.

Exhibit 1: Major US Tariff Actions and Retaliatory Moves (Implemented and Threatened)


Source: US International Trade Commission, IMF and Fisher Investments Research, as of 7/12/2019. US tariffs and global retaliation, 11/2/2017 – 6/28/2019. Italicized lines indicate figure includes threatened tariffs. Cumulative maximum assumes no overlap between items. GDP data are as of Q1 2019.

Finally, it is worth remembering Trump’s tariffs look mostly like leverage—in both trade talks and foreign affairs. We have frequently pointed out the uncanny connection between Trump’s China tariffs and developments in his geopolitical dance with North Korea. Trump needs Chinese President Xi Jinping’s help if he intends to rein in Kim Jong-un’s nuclear weapons program, and tariffs seem like his tools to get it. This latest batch looks like more of the same. North Korea conducted two short-range ballistic missile tests yesterday morning, which follow a separate missile test last week and the unveiling of a large new submarine observers believe is capable of carrying several submarine-launched ballistic missiles.

Hence, Trump’s latest tweeted tariffs look little different than the earlier round and are pretty far from a shocker. Considering the earlier tariffs didn’t stop world stocks from reaching new highs, we doubt this latest batch packs much more punch.