Trade War: Are US Consumers Trump’s Real Strength?



  • This month, there has been a de-escalation in the US-China trade war. President Trump delayed the next round of tariffs on Chinese goods by two weeks. According to Trump, he delayed the tariffs at China’s request.
  • Meanwhile, US retail sales were better than expected in August, and the US consumer confidence index also showed improvement. A strong consumer sector is Trump’s strength in the trade war.
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Trade war

There has been some de-escalation in the US-China trade war this month. This week, China exempted some US goods from tariffs. President Trump also delayed the tariffs set for October 1 to October 15.

Trump noted that he delayed the tariffs at China’s request. To be sure, a strong US economy has been Trump’s strength in these trade talks. Within the US economy, the consumer sector has been remarkably strong.

While the manufacturing sector has slowed down, the US consumer sector has mostly fared better than expected. Equity markets have also been strong this year, and the S&P 500 is looking at a new record high amid de-escalation in the trade war.

Retail sales

Data released today showed that US retail sales rose 0.4% last month, preceded by a 0.8% rise in July. The rise in August’s retail sales is mainly due to auto sales. According to CNBC, if we exclude automotive, retail sales were unchanged in August.

US car sales have moderated after peaking in 2016. Nonetheless, the US automotive sector is doing relatively well considering the sharp fall in car sales globally. China’s electric vehicle sales have also tumbled over the last two months. Recently, China exempted several Tesla (TSLA) models from its purchase tax. Plus, Ford (F) and General Motors (GM) have significant exposure to China.

Nonetheless, August retail sales were better than expected. September’s consumer confidence index also improved, and the reading was better than expected. Previous surveys have shown that the trade war is hurting consumer sentiment.

US companies like Apple (AAPL) are also negatively impacted by trade uncertainty. Apple has expressed its views several times, including at last month’s dinner meeting between President Trump and Apple CEO Tim Cook.

Trump’s real strength

While US economic growth has slowed down, the consumer sector is still holding the line. Given the global slowdown, the US economy is doing relatively better. Although a strong US economy strengthens Trump’s hand in these trade talks, a prolonged trade war could negatively impact sentiments.

A strong employment market has helped buoy the US consumer sector. However, job additions have slowed down this year. Last month’s employment data was also weaker than expected. August’s PMI (purchasing managers’ index) surveys showed that trade uncertainty is hurting hiring decisions.


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