Trump Tariff War Roils Markets, May Cause Massive Job Losses. Tesla Hit Hardest
Donald Trump loves to play the part of a wounded rhinoceros, stomping around and breaking things. It’s what he has done all his life. Judging by the results so far, it has been a pretty effective strategy, but only because people have been afraid to stand up to a bully. Xi Jinping, president of the People’s Republic of China, however, seems to have no problem telling the wild bull of the pampas to take his bluster and shove it. This week, China slapped new tariff fees on imports of soybeans, aircraft, and vehicles from the US. In total, those US products are worth an estimated $50 billion a year.
Chinese “wind-powered electric generating sets” are only responsible for about 0.5% of all electricity generated by wind turbines in the US. The batteries targeted are nickel cadmium and lead acid products, neither of which are used in EVs. The battery parts on the list are used in lithium ion batteries, however, but are generally available from other sources. The Chinese embassy issued a statement on Wednesday saying, “It serves neither China’s interest, nor U.S. interest, even less the interest of the global economy. As the Chinese saying goes, it is only polite to reciprocate.” Polite is a word seldom if ever applied to Trump.
The Chinese tariff on soybeans seems to be specifically targeted at Terry Branstad, the US ambassador to China. Branstad is a former governor of Iowa, whose principal export is — you guessed it — soy beans. How impolite is that?
Mark Zandi, chief economist at Moody’s Analytics, tells Axios the jousting back and forth between the US and China is likely to cost 190,000 US jobs, equivalent to about one month’s worth of job growth and nick America’s GDP for the year by about 0.14%. “And the economic costs will mount quickly if the back-and-forth tariff hikes continue,” he says.
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Ian Bremmer, president of the Eurasia Group, says the war of words is more like two heavyweight boxers jawing at each other before the beginning of a 15-round match. “Trump’s supporters and China will continue to create off ramps from the worst outcomes,” Bremmer says. But he warns that if the tariffs being bandied about actually go into effect, “That will mean goods are more expensive, companies will be less profitable, the average worker gets hurt.” So much for looking out for your base, Donnie.
GeoQuant, a New York research firm that uses artificial intelligence to inform its clients, tells Axios to expect at least a month more of trade-induced mayhem in the stock market. And he warns that Trump has more tools he can use to try to bludgeon China into submission. “Markets will continue to be jolted by U.S. politics at least through the 2018 midterm elections,” the firm said.
The Dow Jones industrial average shed almost 2000 points when Trump first threatened to punish China with new tariffs in late March. Since then, it has gained about half of that back, but investors hate uncertainty. Market volatility could become a regular feature of the Trump administration going forward.
The company that stands to be hurt the most by all this is Tesla. It already pays a 25% tariff on the vehicles it sells in China. If China follows through on its tariff proposal, that will rise to 50%. Most American car makers have formed partnerships with Chinese companies and build their cars for the Chinese market in China. That means they pay no import duty on those cars. Other than Tesla, almost no US carmaker ships cars to China.
The new tariff could complicate things for Tesla, which wants to build a factory in China but is reluctant to partner with a Chinese company to do so. Higher prices because of the new tariffs could force the issue. Which is rather ironic, given that Elon Musk recently had a Twitter fit in which he begged the Trumpster to do something about China’s trade policies. Happy now, Elon?
Update: Late Thursday, after learning of China’s plan to add import duties against $50 billion worth of US products, Trump popped off again, instructing the US Trade Representative to draw up a list of $100 billion worth of Chinese products which could be hit with new tariffs, according to the Guardian. “Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers,” Trump said. He continues to insist the Chinese have forced the closure of many US factories, putting millions of Americans out of work.
“Hopefully the president is just blowing off steam again but, if he’s even half-serious, this is nuts,” said Senator Ben Sasse, a Republican from Nebraska, “China is guilty of many things, but the president has no actual plan to win right now. He’s threatening to light American agriculture on fire.”
Any new tariffs cannot go into effect for at least 60 days, during which time the public has an opportunity to comment. Trump enjoys puffing out his chest and stomping around the room making threats. It’s his modus operandi. He is as transparent as glass and will claim maximum credit no matter how small the gains. The two countries are still talking to one another, and no doubt some sort of deal will be struck that will allow Trump to claim he and he alone is responsible for staving off the collapse of the entire US economy at the hands of the rapacious Chinese.
Hat tip: Dan Allard
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