Tariff and trade war tension continues to simmer based on Trump’s latest Tweets

That feeling that the United States-China “trade war” was going to come to some kind of a mutually beneficial resolution by late May or early June does not exactly seem like such a given, based on recent, you guessed it, Tweets issued by President Trump, right?

If you are not on Twitter, here is what Trump said in two separate Tweets on May 5:

....of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!

— Donald J. Trump (@realDonaldTrump) May 5, 2019

So, the thought that things are, or were, on the home stretch of completion, as they relate to all things U.S.-China trade war and tariff-related appear to be fully off the table now, it seems.

What’s more, this comes on the heels of a recent visit to China by United States Secretary of the Treasury Steven Mnuchin and United States Trade Representative Robert Lighthizer and before a planned U.S. visit this week Liu He, director of the General Office serving the Chinese Central Financial and Economic Affairs Commission, which was set to take place on Wednesday, and was viewed “as the potential last round before reaching a trade deal,” a New York Times report noted. Whether or not this visit is still happening, resultant of Trump’s Tweets, remains to be seen.

This development comes at a time when the Chinese economy, normally in “Bull mode” based on historically high overall GDP growth, has shown signs to slowing going back to 2018. The Times report added that when the Chinese economy began to see some slowing, when it tried to quell its overreliance on lending, coupled with U.S. implemented tariffs harming Chinese manufacturers and consumer confidence, it decreased China President Xi’s options to retaliate against Trump and American tariffs, leaving the need for a new deal fully intact.

On the supply chain front, the impact of tariffs has been clear, with many U.S.-based shippers leveraging a “pull forward” strategy in which they were bringing in a higher than usual number of imported goods from China to get ahead of planned tariff hikes, some of which are already in effect in the form of $200 billion in Chinese products that are currently being taxed at 10% to 25%, which Trump said could happen by Friday.

That resulted in what was already a healthy level of U.S.-bound imports jumping to even higher levels, with the Port Tracker report by the National Retail Federation and Hackett Associates pointing out that at different times over the last several months retailers have been bringing in record amounts of merchandise ahead of planned tariff increases in order to mitigate the impact on their customers, with NRF Vice President for Supply Chain and Customs Policy Jonathan Gold calling tariffs the wild card that has threatened to throw away a significant portion of U.S. economic growth.

Hackett Associates Founder and one of the authors of the Port Tracker Report Ben Hackett was blunt in explaining what more tariffs could mean.

“An increase of 15% on the existing range of goods already suffering from a 10% tariff is nothing short of folly, founded on bully tactics in international diplomacy,” he explained. “In the first instance, it is the U.S. consumer and U.S. industry who will bear the brunt of the increased cost of Chinese imports.  Not the best way to maintain the strong economic growth seen so far this year. Secondly, this type of negotiation does not really work. Insulting the Chinese just as the Deputy Premier is due to arrive to finalize trade negotiations is not exactly smart.”

Hackett added his firm is already seeing shifts in sourcing with imports from China being replaced by imports from Vietnam, quipping that none of this will help to reduce the national trade imbalance and that it does take attention away from the pressures coming from Congress.

Supply chain consultant Jeff Brady noted that in light of ongoing tensions with China, over tariffs and the threat of implementing further tariffs (on hold since earlier this year), there are several ways to view the current situation from a supply chain perspective.

“One, if in place, we can all expect a compression of capacity in ocean freight,” he said. “I believe that ocean carriers are going to continue to have a hard time planning and forecasting with U.S. importers, because of the on-and-off again timing of increases in tariffs. This could cause a ripple effect to rates and possible port delays…issues that we all already have and do not need more of. However, as an American, I see these as necessary. Continuing to operate with the largest trade deficit of any country, is not good- we cannot continue down this path.” 

The tariff situation has been evolving for months now, and, to a degree, things still largely remain in a state of flux. A lot could happen between now and the end of the week…or it could not, we will just have to see and hope things come to a sensible and thorough outcome. Hopefully, that is not asking for too much.