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Will Republican Voters Keep Paying Trump’s Tariffs

17052019_trade war

Will Republican Voters Keep Paying Trump’s Tariffs

The market seems to react to a new development in the US-China trade war with every day that passes. Trump and Xi have swung forward and backward in their attempt to agree on a deal, retaliating back and forth with tariffs in the process. The latest has been China’s announcement that they will increase tariffs on US$60 billion worth of goods from June 1. This came in response to Trump’s decision to increase 10 per cent tariffs on $200 billion worth of Chinese imports to 25 per cent which itself was a kneejerk reaction to Xi backtracking on supposedly agreed upon trade deal terms. 

Of course, both China and America will be hurt by the growing tariffs, with costs incurred on both sides by importing businesses and consumers. However, Trump appears to misunderstand the impact on American citizens, and particularly voters in Republican states.

America buys more Chinese products than China buys from America. As such, Trump believes that China will suffer more than America, and ultimately need to give in to his demands to force a trade deal. Axios’ Jonathan Swan asked several current and former administration officials who Trump believes is paying his tariffs. The consensus is that he believes China is incurring all the costs, not American importers and consumers, as Trump believes in tariffs “like theology.”

Unfortunately for Trump, this trade war is not simply theoretical. While China is undoubtedly being hurt, Americans are also feeling the pain of increased cost of living and doing business. Axios has designed a map that tracks the impact of the trade war once China’s threatened retaliation takes effect. The map is separated into federal election counties, darker segments having a greater concentration of industries being affected by the increased cost of Chinese trade.

Screen Shot 2019-05-17 at 1.42.16 pm

Clearly, Republican seats make up the majority of the darkened segments of the map. Moreover, many of these segments are in rural areas of the country, where businesses are far more exposed to sudden movements in the global economy. This potentially affects hundreds of workers in each small rural industry.

Trump believes he can hold out Xi by continually increasing tariffs to force him into a trade deal. He also believes in his tough stance on China as a key pillar to win the 2020 election. On the other hand, Xi removed the two-term limit on Chinese presidency last year, allowing him to remain in power for life. Trump knows that a new president in 2020, especially a Democrat, is unlikely to maintain the same show of strength against China as he has imposed.

Trump’s political agenda appears to be at odds with itself, and unless he can get a deal across the line before the 2020 election he could be doing more harm than good to his own voters. The added pressure of time may yet swing this trade war into an even more volatile state than it is already in.

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Lachlan is a Research Analyst at MGIM. Lachlan joined MGIM in July 2018 after studying at the University of California, Berkeley where he holds a Bachelor of Arts (Applied Mathematics and Computer Science).

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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3 Comments

  1. I hope I don’t sound too salty but I would genuinely like your opinion on these points that everyone seems to gloss over:
    1. Have you looked into how much in tariffs the US Govt. is collecting? You did not mention this in the article but it is pretty critical. Also it seems the Chinese devalue to pay for these tariffs which softens the inflation blow.
    2. China’s economy in my understanding is growing only with the help of massive malinvestment via their famous limitless stimulus. The only way they can do this is by receiving a constant supply of USD to pay for the massive amount of commodities they consume. Unless they can convince other countries to accept Yuan they NEED USD. No one ever mentions this in the trade war discussion. Obviously this point is stolen from Kyle Bass.
    3. This trade war is not about the middle class in the US as Trump makes it out to be. It is about Chinese theft of intellectual property which has gotten so bad as previous administrations have turned a blind eye, most notably the Obama administration. What should Trump do then if not be tough?

    • Its hard to find anyone willing to say positive things about Trump, and while we may disagree with his methods, on the subject of protecting the US from China’s blatant and culturally-ingrained theft and lying (in individuals this is a sign of inferiority and insecurity), he is fundamentally right to insist on its cessation.

      • andrew ronan
        :

        It’s funny how almost everyone rubbishes Trump, mainly because it’s the norm and we must fit in and be cool etc, and they all complain about his trade war, but they all agree China is the bad guy, and yet they offer no other methods for dealing with the situation, But if the nation voted him in, your basically rubbishing the people, which actually means it’s you who’s wrong, since your the minority and we live in a democracy, kind of,.
        I think Trump is doing the only thing that can be done to push back on China, every one else failed, or didn’t bother trying, Trump may fail to but you have to respect the man for trying all while half the world wants to see him fail for no other reason than to see him fail, even if it costs the country financial ruin.
        I’m not saying your rubbishing trump Roger. Many in the public domain are however just to be politically correct, so crazy.

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