Crying Wolf with Tariffs Again

Last May, the Spirited Reasoner predicted that President Trump had painted himself into a corner with respect to threatening tariffs on China. The first part of the argument ran as follows:

  • The Trump base expects our President to be the most macho dude in the world.
  • They see China cheating on its trade dealings with the U. S.
  • Thus, Trump must up the macho ante by threatening to impose massive tariffs on Chinese imports.
  • But, because tariffs are bad for so many U. S. companies that import foreign components and/or sell agricultural products to China, the stock market slumps, and appears to be in danger of a major crash, whenever Trump threatens to impose tariffs.

Today, August 1, 2019, President Trump tweeted that he intends to add a new tariff on $300 billion worth of Chinese goods coming into the United States. The tariff would take effect on September 1st.  As is always the case with U. S. – imposed tariffs, the tax will be paid by American consumers, not by the Chinese government. (That’s right. A tariff is just another word for a tax.) So, for example, when Americans buy electronics, clothing, or toys, they can expect to find prices marked substantially higher, reflecting the new tax.

As expected, the Dow Jones Industrial Average is falling today by over 250 points.

So, to avoid any self-fulfilling talk of a recession, we should expect President Trump, at some point between now and September 1st, to announce some sort of magical, but bogus, deal with China. That was the second part of the Spirited Reasoner’s argument last May and was borne out by the President’s actions back then. Here’s what I mean:

  • To avoid appearing weak while also protecting the stock market, Trump must make the threat without actually carrying it out. He does this by claiming—soon after the tariff threat—that China is on the verge of making a trade deal favorable to the U. S., thus avoiding the need to impose the (threatened) tariff. (His supporters will talk about his brilliant negotiating technique.)
  • This statement makes the stock market go back up.
  • But then we can expect China, which has no interest in helping President Trump, to make it clear that they are not about to agree to any such deal.
  • Which forces Trump to wait a few months before rattling the tariff sword again.
  • Which will cause the stock market to slump. Again.

It’s a cynical game—one we’re growing tired of watching. China knows that tariffs only serve to harm American consumers. That’s why they’re not afraid to watch President Trump the tariff sword while pounding his chest.