September 24, 2018 Weekly Market Commentary: The Tariff TangoSubmitted by Boyer Financial Services, Inc. on September 24th, 2018
The Trade War Between China and The United States Escalates As New Tariffs Take Effect.
I'm sure you have seen the headline before. As the Sun rose on Monday Morning across America and we sat down to drink our morning coffee, the news flashing across the screen hardly raised an eyebrow. "New round of tariffs set to take effect as the United States places additional taxes on about 200 million dollars worth of Chinese goods." Seeing the breaking news probably got you thinking, "here we go again." Below, i will discuss my thoughts on the new trade tariffs, what they mean for the United States going forward, and how it may affect other trade deals that will follow.
First, before i provide commentary on the latest tariffs, here are two important things you need to know:
#1: The U.S. and China have already applied $50 billion in tariffs on each other's goods.
#2: As of Monday, September 24, The U.S. had applied an additional $200 Billion dollars worth of tariffs on Chinese goods that include furniture and appliances. China retaliated immediately, applying $60 million of new taxes on more than 5,600 U.S. goods.
Since announcing the new tariffs this past Monday, President Trump has stated that any retaliation by China would immediately induce another $267 Billion dollars in tariffs on Chinese goods. With this news still being fresh at the time of this commentary being written, it is yet to be seen if President Trump will follow through with his tough retaliatory tax talk, or if it was more of a threat to try and bring China back to the negotiating table. China has recently stated that they were not ready to negotiate, as they believe the United States is practicing trade-protectionism, while further accusing Washington of not wanting to get a fair deal done that will benefit both countries.
I believe that the U.S. will win the trade war, it's just a matter of when they win the war. We import a substantially larger portion from China, approximately $505 billion year-to-date. Whereas China has imported approximately $130 billion year-to-date. The U.S. has a larger tariff war chest to play with in terms of the dollar amount that can be levied, while China has begun to get creative with what U.S. products to target, and could decide to go after some of the United States' biggest Tech names if the trade war drags on.
I do not believe it is time to worry, as Trump's team of Mnuchin, Kudlow, and Co. are well-versed in economic dealings, and will be the difference makers in getting a deal done. Plus, earnings here in the U.S. are still strong, and companies are feeling the benefits of the reduced corporate tax rate. However, the more time that this United States-China trade conflict wages on, it could send ripples through our economy, hindering future corporate growth, earnings potential. and even the jobs market.
With the ongoing trade deal with China taking center stage, it would be a crime not to mention that a trade deal with South Korea has just been signed, putting further pressure on other countries to follow suit and negotiate new deals (just as Mexico has recently done with U.S.). In my opinion, NAFTA will eventually get re-worked, as well a new trade deal with the European Union. If a few of these deals can get signed, it could provide a domino effect for other trade deals. Possibly helping prolong an extended growth cycle for the U.S. economy, furthering this record bull market we have been a part of.
Stay tuned for more weekly commentaries on important market events and economic policy. If you have any questions, i urge you to contact us via phone or email.
Have a great week, and celebrate every day!
Jason R. Jacobi
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