Did Markets or Consumers Prompt Trump’s Tariff Delay?

In a statement released today by the office of the US Trade Representative, the US said it was delaying additional tariffs on Chinese goods until December 15. On August 1, Trump announced that the US would levy a 10% tariff on an additional $300 billion worth of Chinese imports starting on September 1.

The announcement escalated the trade war, attracting retaliation from China. In addition to devaluing the Chinese yuan, China instructed its state-run enterprises to halt US agricultural product purchases.

Removal of certain items from the tariff list

The statement said, “Certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent.” China has also agreed to have another call with the US in two weeks to discuss trade tariffs.

Trump attributes tariff delay to Christmas shopping season

So what caused Trump to backtrack from this initial decision? As reported by CNBC, Trump told reporters, “We’re doing this for the Christmas season.” He added, “Just in case some of the tariffs would have an impact on U.S. customers.”

This announcement came as a relief for the markets, which have been under pressure amid the escalating trade war. The US markets saw their worst fall of 2019 on August 5 after China devalued the yuan.

Markets surged after tariff delay news

Today, however, the markets surged on the decision to delay tariffs. The S&P 500 (SPY), the Dow Jones Industrial Average (DIA), and the Nasdaq Composite (QQQ) were up 1.62%, 1.57%, and 1.9%, respectively, at 1:00 PM ET. Apple (AAPL) shares led the markets higher, rising 4.0%. Apple was one of the worst-affected stocks due to the recent trade war escalation.

The US Trade Representative’s statement listed the items that would be removed from tariff inclusion. The list included smartphones, which will benefit Apple stock. US semiconductor stocks, other stocks that are at the forefront of the trade war, are also rallying today. As of 1:00 PM ET, Micron (MU), Broadcom (AVGO), and NVIDIA (NVDA) are up 4.27%, 2.3%, and 3.2%, respectively.

Did Trump delay tariffs to support the markets?

Not many are buying Trump’s narrative of delaying tariffs due to the Christmas shopping season. Jim Cramer believes that Trump simply didn’t want the stock markets to fall any further.

Jim Chanos, a US investment manager and founder of Kynikos Associates said, said, “So then tell me why Xi should not continue to wait out The World’s Greatest Negotiator, who keeps ‘dealing’ with himself?”

Others on Wall Street are also questioning the rationale behind Trump’s latest move on tariffs. Many believe that since Trump’s two biggest priorities—a tough China trade deal and strong US stock markets—are at odds with each other, he’s decided to delay the tariffs. David Rosenberg, another prominent investor, tweeted, “The White House is now delaying the tariffs and removing some items. Did some acronym called the SPX cause someone to blink?”

Investors should exercise caution

Whatever the rationale may be, investors should remain cautious, as the timely emergence of a comprehensive trade deal between the US and China remains doubtful. Goldman Sachs (GS) doesn’t see a trade deal happening before the US 2020 presidential election. Credit Suisse (CS) also thinks that after China’s currency move, there’s a lower probability of a timely trade deal.