Here’s Why Trump Is Hiking Chinese Tariffs To 25%

Thursday, August 2, 2018
By Paul Martin

by Tyler Durden
Thu, 08/02/2018

One of the cited reasons behind today’s market slide which started in Asia and promptly swept the rest of the globe, is a belated appreciation of Tuesday’s news that the Trump administration is now considering more than doubling proposed tariffs on a further $200 billion worth of Chinese goods to 25%, up from an original 10%.

But what exactly prompted Trump to push for the sharp reset in Chinese tariffs?

The answer was actually first given by Trump himself three weeks ago, when in a candid CNBC interview the president said that he was not only watching the US trade deficit with China, but also its currency, which was “dropping like a rock”, suggesting that trade war was morphing into currency war after he berated the Fed for hiking rates and pushing the dollar higher (when, as we explain below, Trump should be commending Powell for doing just that).

Fast forward to today, when the WSJ gives some further color, noting that while “the administration didn’t spell out a particular rationale for increasing the tariff…. the reasons include anger over the Chinese government’s failure to approve the merger of U.S.-based Qualcomm Inc. and Dutch chip maker NXP Semiconductors, which forced the companies to scrap a deal aimed at boosting Qualcomm’s reach into new markets.”

The WSJ also cites “industry officials who have discussed the move with the White House” and who said that another, perhaps far more important reason for the tariff increase “is to compensate for the decline in the value of the yuan by about 6% over the past two months.”

“It’s important countries refrain from devaluing currencies for competitive purposes,” a senior administration official said, and although he didn’t accuse China of acting in that fashion, the implication was clear.

Yet another reason that forced Trump’s hand is that as several banks have recently pointed out, the Yuan devaluation to date has effectively offset the adverse impact to Beijing from the $34 billion in tariffs enacted on Chinese goods, mainly machinery and components (to which China retaliated with tariffs on the same amount of U.S. exports, especially farm products).

The Rest…HERE

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