Today President Donald Trump has indicated that he is willing to slap tariffs on every Chinese good imported to the U.S. should the need arise. This is a shocking comment but likely only rhetoric. The stock market shrugged it off and the S&P 500 is flat on the day.
"I'm ready to go to 500," the president told CNBC's Joe Kernen in a "Squawk Box" interview aired Friday. The reference is to the dollar amount of Chinese imports the U.S. accepted in 2017 compared with the $129.9 billion the U.S. exported to China, according to Census Bureau data.
Thus far in the burgeoning trade war, the U.S. has slapped tariffs on just $34 billion of Chinese products, which China met with retaliatory duties. These numbers pale in comparison to the fiscal stimulus from tax reform and increased governmental spending where the US deficit will push $1 trillion again.
Risk of escalation
While it seems that the stock market expects cooler heads to prevail, there are risks of an escalation of a trade war. Increased trade tariffs are bad for American consumers and businesses. Ron Paul said, "A tariff is a tax and the tax is on the people who live in the country who raises it. People that might be enjoying $25 tennis shoes will have to pay $100. That doesn't help anybody." The US auto industry also warned the Trump administration that a 25% tariff on all imported vehicles would amount to a $45 billion tax on consumers and wipe out any benefits from a tax cut for low and middle income Americans.
If you would like to hear more of our thoughts on trade tariffs, the economy and views on the stock market, we will be hosting our quarterly investment outlook webinar on Wednesday July 25th at 3pm for our clients. We will discuss the markets and take Q&A. If you have interest in tuning in live or to the replay, please visit http://runnymede.com/outlook to register.