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Trump Bows to Economic Fears in Move to Delay China Tariffs

Trump Bows to Economic Fears in Move to Delay China Tariffs

Aug. 15, 2019
What this means is that retailers will be able to get their shipments in without the 10% tariff, which is a sigh of relief,” said Poonam Goyal, a retail analyst. “It definitely saves the holiday season.”

President Donald Trump bowed to pressure from U.S. businesses and concerns over the economic fallout of his trade war with China, delaying the imposition of new tariffs on a wide variety of consumer products including toys and laptops until December.

The move on August 13 to at least hit the pause button in his fight with China came as senior officials on both sides had their first phone conversation since Trump threatened the tariffs at the beginning of this month. It also cheered markets that had been growing increasingly concerned over the impact of trade tensions on a slowing global economy. U.S. stocks halted a two-day slide, and Asian equities climbed.

Trump said the latest conversation with China had been “productive” and that “they would really like to make a deal.” Though he has often denied his tariffs have any impact on consumer prices and insists their cost is being borne by China, he also said the delay had been made “so it won’t be relevant to the Christmas shopping season.”

The move announced involved the splitting of an almost $300 billion list of products from China into two separate ones. Lots of agricultural products, antiques, clothes, kitchenware and footwear remained on the list to be hit Sept. 1 -- with a total value of more than $110 billion, according to a Bloomberg News analysis of last year’s import figures. But big-ticket categories such as smart-phones, laptops, and children’s toys -- worth about $160 billion -- would only be subject to tariffs after Dec. 15.

Nearly $2 billion worth of products were removed from the combined lists including bibles and shipping containers.

The delay “is an incrementally positive sign,” Goldman Sachs Group Inc. chief economist Jan Hatzius wrote in an note. “It suggests that the disruption in financial markets over the last several days could have led to a softening of the White House position.”

China’s commerce and foreign ministries didn’t immediately respond to faxes seeking comment.

While markets applauded the splitting of the new tariffs, some businesses expressed frustration with the sudden turnaround and the fact that they were once again being left to make important business decisions on the fly because of the president’s trade policies.

“It’s too late and it’s not enough,” said Peter Bragdon, chief administrative officer for the Columbia Sportswear Co. “There’s continued chaotic policymaking and incoherence coming out of Washington that makes it very hard for businesses in the United States to plan.”

Columbia still has products including footwear such as waterproof hiking boots that would be hit with a 10% tariff come next month. While only 10%-15% of Columbia’s products were made in China, production of specialized footwear was difficult to move, Bragdon said, and the company had already warned customers it would be forced to raise some of its prices.

In some cases the splitting of the tariffs will make life more complicated for retailers and other businesses. Some categories of golf shoes, for example, will be subject to a 10% tariff Sept. 1 while others will not be targeted until Dec. 15. Apple Inc.’s iPhones will not face new import taxes until mid-December. But the popular wireless Airpods that go with them will be taxed in September.

Stocks surged on the news . Apple Inc. spiked as much as 5.8% and Best Buy Co. climbed as much as 11% on optimism that the reprieve would boost electronics sales in the holiday season. Apparel retailers including Gap Inc. and L Brands Inc. rose, as did toymaker Hasbro Inc. and discount chain Dollar Tree Inc.

“What this means is that retailers will be able to get their shipments in without the 10% tariff, which is a sigh of relief,” said Poonam Goyal, a retail analyst at Bloomberg Intelligence. “It definitely saves the holiday season.”

With the Sept. 1 deadline, there wasn’t time for retailers to speed up ordering for the holiday season because it often takes more than four weeks for inventory to come from China, Goyal said.

Read more: U.S. Releases Lists of Chinese Imports to Be Subject to Tariffs

About $250 billion of Chinese goods have already been hit by 25% duties.

David French, a spokesman for the National Retail Federation, said the organization was pleased by the delay on certain consumer goods but expressed caution.

“Continued uncertainty for U.S. businesses and consumers is a drag on the economy,” he said. “What we really need is an effective strategy to address China’s unfair trade practices by working with our allies instead of using unilateral tariffs that cost American jobs and hurt consumers.”

Chinese Vice Premier Liu He talked with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin by phone on Tuesday, Chinese and U.S. officials said. Another conference call is planned again in two weeks. It’s still unclear if an in-person meeting would take place sometime in September.

But whether the two sides had made any progress was unclear and some analysts saw Tuesday’s move to delay some tariffs as a sign of Trump’s political vulnerabilities at home as much as an olive branch to China.

“It shows the increasing chaos of the administration’s trade strategy toward China. And despite the president’s claims, it’s the clearest sign yet that Trump actually does understand that the tariffs are hurting American companies and consumers,” said Edward Alden, a trade expert at the Council on Foreign Relations. “It will also further weaken the already slim chances for any negotiating progress in September. Why would the Chinese make difficult decisions if they can wait out Trump and wait for him to fold when the stock market sags?”

Scott Kennedy, a China expert at the Center for Strategic and International Studies in Washington, said there was still a danger of further escalation, especially around the tech sector. “But much of this is just keeping up appearances for a strategy that hasn’t succeeded,” he said. “That does not mean that the U.S. and China are likely to reach a trade deal, but rather that the relationship will be stuck in this purgatory for the remainder of the current administration.”

What Our Economists Say

“Speak to businesses and it’s the uncertainty -- not knowing if a tweet from President Donald Trump will break a crucial supply chain or block access to a market -- that’s weighing on investment and hiring decisions. A surprise delay to tariffs, and the creation of a new artificial deadline on Dec. 15, will do little to resolve it.”

The International Monetary Fund last month cited trade tensions as one of the biggest risks to the global economy as it downgraded its 2019 growth forecast, while Goldman Sachs has said there are growing concerns that the trade war will trigger a U.S. recession. A Bloomberg News August survey of economists gave a 35% probability of a recession in the next 12 months, up from 31% previously.

Trump’s Aug. 1 announcement about the new duties ended a tentative trade truce that he forged with Chinese President Xi Jinping at the end of June in Japan, just as the two sides were resuming negotiations. In the past week, tensions have escalated further as the U.S. Treasury Department formally labeled China a currency manipulator.

By Shawn Donnan, Jenny Leonard and Olivia Rockeman