President Donald Trump on Tuesday told reporters he agreed to revise and delay his latest swath of tariffs on Chinese goods to help consumers “for Christmas season, just in case some of the tariffs would have an impact on U.S. customers.”
But analysts also viewed the temporary detente in the ongoing U.S.-China trade conflict as a sign Trump’s administration is trying to get the stock market and the broader economy under control heading into the holiday season and before a contentious 2020 election year.
“This is absolutely a domestic, political move,” Derek Scissors, a resident scholar and Asia economist at the conservative American Enterprise Institute, said Tuesday during an appearance on CNBC’s “The Exchange.” “I don’t want to turn this into too much domestic politics, although I do think that’s what’s driving the change today.”
The Dow Jones Industrial Average closed Tuesday up more than 370 points – a jump analysts widely attributed to news that, following a call with Chinese officials on Monday, U.S. Trade Representative Robert Lighthizer’s office would delay a series of tariffs on $300 billion of Chinese goods.
“Still, even after today’s developments we’re looking at higher tariffs and lower stock prices than before the [Aug. 1] announcement that the tariffs would be expanded to cover essentially all goods from China,” Joel Prakken, chief U.S. economist and co-head of U.S. economics at Macroeconomic Advisers by IHS Markit, said in a statement Tuesday, noting that the move “seems like an attempt to buy some negotiating time while softening [the] holiday blow to consumers.”
The Trump administration on Tuesday also announced it would remove certain items from its threatened tariff list, which it plans to enforce if negotiations with China have not progressed by mid-December.
“Just in case they might have an impact on people, what we’ve done is we’ve delayed it so they won’t be relevant to the Christmas shopping season,” Trump told reporters Tuesday during a media appearance at the Morristown Municipal Airport in Morristown, New Jersey.
The news comes after weeks of volatility for the Dow, for domestic and international bond markets, and for global manufacturing and trade activity. The Dow closed Monday down more than 1,300 points from where it sat two weeks ago – before the Trump administration threatened China with its latest round of tariffs, which prompted China to allow its yuan currency to devalue to its lowest level against the dollar in more than a decade.
“This is a bit of a psychological kick the can down the road. People hear it. They feel a little better. But it’s really hard to read the tea leaves and figure out if this is a sincere improvement or not,” says Steve Murphy, CEO of Epicor software company.
But the delayed tariffs have also been described as politically motivated, particularly as the U.S. economy’s momentum wanes ahead of 2020. Business investment has underwhelmed of late, and the spread between the 2- and 10-year Treasury yields in recent weeks has been flashing signs of a looming recession.
The Federal Reserve Bank of New York’s recession tracker, which is based in part on Treasury spreads, most recently projected the economy’s odds of entering a recession by July 2020 at 31.48%. Going back to 1960, only once has the indicator been that high when the U.S. was not in the midst of, immediately exiting or imminently approaching a recession.
“Maybe we can kind of slide through this environment with just another slowdown and not a recession,” Liz Ann Sonders, a senior vice president and chief investment strategist at Charles Schwab, said on a recent conference call, though she noted that the New York Fed’s recession predictor was flashing “something between yellow and red.”
An untimely recession could end up being bad news for Trump’s reelection bid, especially considering stock gains, tax cuts and labor market health have regularly proven to be his administration’s barometer for success. The president’s desired health care overhaul fell through, infrastructure reform has yet to see much progress and the administration’s ability to finalize and implement new trade deals has to this point failed to see much substantive progress.
But the economy has held steady, with monthly jobs reports indicating U.S. employers are creating tens of thousands of new jobs each month as unemployment holds consistently below 4%.
An ABC News/Washington Post poll conducted in late June and early July asked respondents whether they approved of Trump overall and whether they approved of his administration’s work on certain key issues, such as immigration, health care, gun violence and foreign policy. The economy was the only category for which more than half of respondents (51%) supported the president’s actions.
But analysts believe the administration’s ongoing trade conflicts may be threatening the economic success that was expected to underpin Trump’s reelection campaign.
“Until recently, people thought he wasn’t going to jeopardize the economy heading into the 2020 election. And I keep telling people, ‘I’m not sure that’s how he works,'” says Dan Ujczo, an international trade and customs lawyer and practice group chair at Dickinson Wright law firm.
Some pointed to Trump’s comments on Tuesday morning as evidence that the administration is starting to realize its trade policy is tangibly dragging on the economy. Trump’s comments in Morristown are among his few public acknowledgments that consumers may end up paying higher prices as a result of his tariffs.
“The administration has been saying otherwise, but it is good to see that they do not believe their own words,” Ryan Young, a senior fellow at the libertarian Competitive Enterprise Institute, said in a statement Tuesday. “Several rounds of China tariffs have so far failed to encourage the Chinese government to make needed reforms. Beijing has instead consistently retaliated with its own trade barriers, hurting the U.S. economy as well as its own.”
Trump also acknowledged that he’s “not sure whether or not [China] wanted to wait until a Democrat has a chance to get in” and negotiate a deal following the 2020 election. He went on to say “the economy would go to hell in a handbasket very fast” if such a scenario played out, but he made clear that Chinese and U.S. officials have the upcoming presidential election fresh in their minds as they attempt to iron out some sort of deal.
As Trump positions himself as an economic champion heading into 2020, he appears to have walked away from the brink of further trade escalation in hopes of winning the long game: an eventual trade deal and another term in office.
“I think the president is going to want clarity on who his Democratic opponent is [before taking additional action against China],” Scissors said. He noted that former Vice President Joe Biden and Sen. Elizabeth Warren of Massachusetts, for example, are “very different on China.”
“That’s a very different strategy for the president in 2020,” he said.