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Tariffs Get a Breather, Trump Slams the WTO

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On Tuesday, the markets ended on a high note due to easing tariffs on Chinese imports. However, President Trump attacked the WTO (World Trade Organization) again.

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Tariffs and Trump’s threats

President Trump talked to workers at Royal Dutch Shell’s plant at Monaca, Pennsylvania. He threatened to pull out of the WTO. He said that “they have been screwing us for years.” He referred to the WTO giving China favorable terms. President Trump targeted India and China for benefiting from WTO loopholes. He targeted the WTO in the past.

Tariff delays fuel markets and trade stocks

However, the timing of President Trump’s latest attack is crucial. On Tuesday, the US Trade Representative’s office said that the 10% tariffs on cellphones, certain electronics, and consumer items have been postponed until December 15. The US removed some tariffs on essential items. The S&P 500 (SPY) rose and ended 1.5% higher on Tuesday. The Nasdaq (QQQ) ended 2% higher. Semiconductor stocks including Micron (MU), Qualcomm (QCOM), Broadcom (AVGO), and Intel (INTC) rose 4.84%, 3.41%, 2.92%, and 2.72%, respectively. The first three derive over half of their revenues from China. However, China accounts for a quarter of Intel’s revenues. Apple (AAPL) rose 4.23% on Tuesday due to easing trade tensions. Apple produces most of its phones in China. The ongoing trade war hurt the company. Apple’s costs will likely increase due to tariffs.

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Tariffs on US goods?

The WTO is significant. With 163 member countries and more looking to join, the WTO is the biggest trade bloc in the world. The US has contributed significantly to the WTO. If President Trump decides to leave the WTO, the US will lose favorable access to the WTO’s member countries. To keep the status quo, the US will have to get into separate agreements with countries and regional trade blocs. Going by President Trump’s history of breaking more deals than making them, separate agreements could be a tough task. If the US leaves the WTO, it might be in a trade war with the world.

As a result, US exporters will likely suffer. Imagine that the US leaves the WTO. If Tesla (TSLA) wants to tap a country that is part of the WTO, the company would be at the US government’s mercy to enter into a trade deal and get fair treatment. Without the WTO, tapping these markets will be challenging for companies like Tesla. Tesla has already complained about high tariffs in India.

Under President Trump’s leadership, the US distanced itself from its allies on various issues. Leaving the WTO could weaken the relationships more. The US wouldn’t be as important in world geopolitics and economics.

Will China gain if the US exits the WTO?

If the US exits the WTO, China would become the organization’s most prominent member. China could dictate world trade, which would weaken the US’s position.

If the US is weaker, it won’t be in a position to make bilateral trade agreements on favorable terms or enact tariffs. Leaving the WTO would hurt President Trump’s goal to make America great again.

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