US Blinks On China Tariffs

China seems to have won one round of the who-will-blink tariff contest with the United States’s announcement that electronic items like smartphones and memory chips will now be exempt. In a gradual raising of scales, US President Donald Trump, exasperated at China’s unwillingness to bend the knee, had announced as much as 145 per cent tariffs on it. In return, China moved their needle up to 125 per cent. The traditional Trump response has been to increase it even further, instead came these exemptions. Usually, he goes public with big tariff decisions, but this one was left to a dry release by the U.S. Customs and Border Protection.

Among the companies that will welcome it is Apple, who does a large percentage of its manufacturing in China. A 145 per cent tariff would have made its phones exorbitant to Americans. Laptops, desktops, tablet, semiconductors are all now exempt from the tariff. This drawdown followed the 90 day reprieve for more than 70 countries that were willing to negotiate, an announcement that was made as a social media post along with the punitive increase on China. Now, as even those tariffs are being whittled down, the global economic system that was upended might hope for some stability.

If tariffs were no more than a negotiating instrument, then the reversing of it began much before any of the negotiations fructified because the markets spoke loudly to punish the impulsive manner in which policies were being changed by the day. Blue chip stocks like Apple has fallen nearly 20 percent in one month. US bond prices were trundling down at a pace that hinted at a financial catastrophe in the offing. Leading economists of the world still can’t understand the motive, why someone would risk their own economy with an experiment that has no precedence.

Even reversing the policy, might not undo the damage. Companies, markets want predictability about the environment to make plans for the future. With Trump, that is proving impossible. For instance, if companies planned to shift to manufacturing in the US, as was one of the stated aims of the steep tariffs, then what happens now that so many items have been exempted? How is anyone to be sure a huge tariff increase wont be back one fine day on these items? JP Morgan is predicting a 40 percent possibility of a global recession, fuelled by such uncertainties. In the report that mentioned this, its chief global economist Bruce Kasman said, “We now see a materially higher risk of a global recession. The administration’s shift in the application of tariff policy and the potential impact on sentiment have contributed to this increased risk.”

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