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Brad Setser @Brad_Setser
, 12 tweets, 3 min read Read on Twitter
A few quick thoughts on Trump's decision to threaten to respond to China's $50b in retaliatory tariffs with an additional $200b in U.S. tariffs (up from the $100b threatened before, but at 10% rather than 25%) ...
1. $250b ($50b plus $200b) is half of 2017 US goods imports from China. No way you get there without putting tariffs on a lot of consumer goods imports - be it computers/ cell phones or apparel (clothes)/ toys/ small household appliances and the like.…
2. I actually thought the initial $35b of tariffs were reasonably well chosen - yes, the list had intermediate goods (parts) not final goods, but the targeted sectors were those where Chinese imports were a small share of the total, so substitution away from China = possible.
3. As you move away from intermediate goods to consumer goods, the opportunities for substitution away from China fall (either substitution with US production or imports from elsewhere). US consumers will see/ feel the $200 billion. Presumably that's why the rate fell to 10%
4. $250b is ~ 2% of China's GDP. Of course the actual economic impact on China will be a fraction of that (imported inputs = others hurt, China will export more to other markets, in many sectors the US will just pay the tariffs, etc). But starting to have a macro impact ...
5. China of course is currently in a monetary/ quasi fiscal tightening cycle. In an ideal world China would respond to any weakness in exports with a bit of on the central government's budget consumption-focused fiscal stimulus. But ...
6. It is also possible China responds by loosening monetary policy (not following the fed up) and letting its currency weaken. That - along with targeting US firms operations in China - is one of China's asymmetric options for responding.
7. It increasingly looks like the Administration is putting China in a position where China cannot make concessions without appearing to cave - which most think China won't/ cann't do. I at least have a hard time seeing a deescalation option if Trump goes through with the $200b
8. $250b is roughly 1.25% of US GDP. The direct impact of the tariffs will be a fraction of that (lots of folks will initially pay the 10% I assume), though there will also be price increases in all the markets where Chinese competition is factor.
9. I have long thought it would be hard for Trump's trade action to be so big as to overwhelm the quite large fiscal stimulus now in train for this year and next.
10. But with up to $250b in tariffs on China/ steel, aluminum tariffs/ the possibility of auto tariffs (finished vehicles are $200b, total imports including parts $350b)/ Chinese retaliation against beans/ & some risk of NAFTA withdrawal, it is now starting to seem possible ...
that's all for now ...
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