Economy

Trump Sets Up An Economic Time Bomb

Written by SK Ashby

Confirming earlier reports, Trump announced that he would impose a 10 percent tariff on $200 billion worth of imports from China, rather than 25 percent, but that doesn't mean that tariffs can't be increased once they're on the books.

In fact, the Associated Press reports that Trump's tariffs will automatically increase to 25 percent on the first of the year if he does not raise them before then.

WASHINGTON (AP) — The Trump administration will impose tariffs on $200 billion more in Chinese goods starting next week, escalating a trade war between the world’s two biggest economies and potentially raising prices on goods ranging from handbags to bicycle tires.

The tariffs will start at 10 percent, beginning Monday of next week, and then rise to 25 percent on Jan. 1. [...]

The administration is targeting a bewildering variety of products — from sockeye salmon to baseball gloves to bamboo mats — forcing U.S. companies to scramble for suppliers outside China, absorb the import taxes or pass along the cost to their customers.

It's been reported that Trump's staff convinced him to impose a 10 rather than 25 percent tariff because 10 percent may not be passed down to consumers.

Even if you believe most companies will absorb the impact (I don't) of 10 percent, they almost certainly will not absorb a 25 percent tariff. They can't.

Meanwhile, China has followed through on their pledge retaliate and, for the first time, they're targeting America's natural gas industry.

Analysts and traders have said that although China is a huge buyer of LNG especially in the run-up to and during winter, it should easily find supplies from other large exporters such as Qatar and Australia. [...]

For U.S. companies developing LNG export terminals such as Cheniere Energy, Sempra and Kinder Morgan, the tariff casts doubt over their projects’ final investment decisions (FIDs), which trigger construction of facilities.

“It’s a problem for Cheniere as it makes their LNG uncompetitive in China,” Noel Tomnay, vice president for gas and LNG consulting at Wood Mackenzie, told Reuters on the sidelines of an industry event in Barcelona, Spain.

“But the biggest problem is for all those U.S. LNG projects trying to get FID. China would be the biggest market for all of them. While these tariffs last, it’s unlikely they can take off. That’s a potential opportunity for non-U.S. projects (e.g. Canada) to go ahead.”

Like soybeans and sorghum, China may just stop buying American gas.

I think it's only a matter of time before Republicans start talking about passing a stimulus package or a bigger version of Trump's bailout for farmers to offset his trade war.