96: Trump's Next China Tariffs and Fears in the Global Economy

Episode Summary

Executive Summary: The episode examines Trump’s delayed China tariff rollout and its economic implications. Chad Bown explains that most of the new tariffs still take effect by mid-December, targeting consumer goods likely to face higher costs, while Samaya Keynes explores whether trade tensions are materially weakening the U.S. economy. Both conclude tariffs are contributing to uncertainty and investment caution, but are not the sole cause of broader slowdown risks.

Main Topics: Trump’s tariff delay and split implementation schedule (Priority: 5/5): The hosts explain that the announced China tariffs were split into two lists: one beginning September 1 and another delayed until December 15, with the delay aimed at holiday-season consumer imports. Tariff exposure and consumer-goods timing (Priority: 5/5): They discuss seasonality and why delaying tariffs on toys, electronics, apparel, and other holiday/back-to-school items could reduce immediate disruption, though not eliminate it. Who bears tariff costs (Priority: 5/5): The conversation addresses the view that delaying tariffs suggests concern about U.S. importers and consumers bearing the burden, especially since these new tariffs focus on consumer goods rather than intermediate inputs. Trade war uncertainty and investment effects (Priority: 5/5): Samaya reviews evidence that tariff uncertainty is dampening business confidence, postponing capital spending, and worsening financial conditions, though causality is hard to isolate. Broader global slowdown and recession fears (Priority: 4/5): They connect tariff tensions to weaker data from Germany and China, stock market reactions, and the yield curve’s recession signal, while stressing multiple overlapping causes. Limits of blame and policy coordination risk (Priority: 4/5): The discussion cautions against blaming any single factor, including the Fed or tariffs alone, and notes that if a downturn comes, global cooperation may be harder to secure than during the 2008-09 crisis.

Key Arguments: The delayed tariffs still amount to a near-complete coverage of U.S. imports from China by December, so the delay is not a retreat from the trade war. Because the new tariffs target consumer goods, firms have less room to absorb costs than they did with earlier tariffs on intermediate inputs, making passthrough to consumers more likely. The timing of the tariff implementation appears designed to avoid peak import surges: September 1 avoids August back-to-school imports, and December 15 comes after much of the holiday inventory rush. Evidence from surveys and company data suggests tariffs and trade uncertainty are reducing investment, but other factors—Boeing problems, weaker oil prices, and a manufacturing downturn—also matter. The U.S. economy is large enough that tariffs alone are unlikely to mechanically cause a recession, but uncertainty can still have indirect effects via confidence, investment, and financial conditions. Recession risk is not just about direct output losses; it is about self-fulfilling caution, weaker hiring, lower spending, and deteriorating animal spirits. If the global economy weakens, the ability of major economies to coordinate responses could be impaired by ongoing trade conflicts and decoupling pressures.

Data Points: Announced tariff rate: 10% - Trump’s August 1 announcement of new tariffs on Chinese imports Initially announced import value: $300 billion - Value of Chinese imports targeted in the original announcement Actual import value in data: about $272 billion - Chad notes the trade data value of the products, based on 2018 imports September 1 tariff list: about $112 billion - Portion of the targeted imports scheduled to be tariffed first December 15 tariff list: about $160 billion - Portion delayed until mid-December, largely consumer/holiday goods Tariffs previously imposed: $250 billion - Existing 2018-2019 tariffs already covering large amounts of Chinese imports Tariff coverage by December: at least 10% on basically everything the U.S. imports from China - Chad’s summary of the likely end-state after the new round takes effect Tax comparison: about one-fifth - Goldman Sachs estimate that tariff increases announced so far were roughly one-fifth of the 2017 tax cuts Investment impact from Atlanta Fed survey: 1.2% overall; about 4% in manufacturing - Survey-based estimate of investment cutbacks due to trade tensions Investment change in exposed sectors: 1% decline - Most exposed 20 sectors over the most recent four quarters versus the prior four quarters Investment change in other sectors: around 15% increase - Less exposed sectors over the same comparison period Stock market reaction: S&P 500 went up a bit, then down again - Samaya describes market response to tariff delay and weaker global data Bond market signal: yield curve moving in the wrong direction - Interpreted as investors becoming more fearful of recession

Pivotal Quotes: "the bigger takeaway is these tariffs are coming" — Chad Bown: Chad emphasizes that the delay does not remove the broader tariff threat "The thing to worry about is that something happens, their narrative changes, people start being really worried about what's going to happen, and then essentially at the same time, everyone starts to just pull back a bit." — Chad Bown: He explains the self-reinforcing risk to investment, hiring, and spending "We like trade, just not the stuff being traded." — Samaya Keynes / Chad Bown: A joking summary of exempted items like containers, Bibles, COD, and children’s safety seats

Implications: Tariffs may still pass through to prices, especially on consumer goods, while uncertainty could keep weighing on investment. The larger risk is a confidence-driven slowdown that becomes harder to reverse if global cooperation weakens.