Is it a case of he said, Xi said? Only if Presidents Trump and Xi are talking to each other at the G-20 meeting at the end of the month and that's by no means clear right now.
The stakes have been ratcheted up by our president who is saying that if Xi doesn't show to the meeting, there could be tariffs that are much higher than 25% on $300 billion of Chinese merchandise. Of course if Trump put those tariffs on he would effectively shut down the Chinese export market to the United States because almost no consumer could possibly afford tariffs that high. Industrials would balk, too. It would be necessary to have back-up sourcing around the globe, something that Apple (AAPL) apparently already has, according to a senior executive at Hon Hai, as Bloomberg reported this morning.
I know that President Trump is always calling President XI a great friend and I think he longs for the president for life strong man profile that Xi has. But this gauntlet of a G-20 meeting could impact stocks mightily and give us something that could knock the bull off kilter.
Remember the president is tariff happy. He thinks that the tariffs bring in big amounts of money from overseas and doesn't believe that we suffer at all from these tariffs. In his view the tariffs force the Chinese to pay our government money and therefore it is a win win - we help pay down the debt with the tariffs and we force U.S. customers to source elsewhere. It's an alternative facts view but, remember, in Trump's world everyone is entitled to his or her set of facts and it is un-American to disagree with his Trump-based fictional factual worldview.
Or is it a factual fictional worldview?
Again it comes down to he said, Xi said.
I also expect our tariff happy president to go after Germany by the end of June's G-20 and I am basing that on a tweet this morning about how the euro is debased versus the dollar putting the "U.S. at a tremendous disadvantage." The Europeans are not going to let the euro rise in value so the only way that you can get the Germans to stop selling currency-cheapened BMWs, Benz's and Volkswagens is to slap tariffs on them. Believe me, the president is none-too-happy that BMW opened its billion dollar plant in San Luis Potosi just yesterday. Cruel irony. Two-thousand-five-hundred people already work at the plant which is building the incredibly popular Series 3. BMW intends to make 175,000 cars in San Luis Potosi and there are 220 Mexican suppliers who also benefit from the plant. The multiplier effect from a modern day car factory filled with bells and whistles is extraordinary.
He can't put a tariff on the Series 3 as he just agreed to a new duty relationship with Mexico. But he can always get back at the Germans for not building new cars in the U.S. and for not paying its fair share in NATO - another one of the president's causes that can be dealt with through tariffs.
As long as the president believes that tariffs carry no risks and only rewards both in the ballot box and with the budget, we should expect barriers to be raised pretty much everywhere. He's entitled to his alternative facts as long as he is president. The rest of us, I think we can separate fiction from fact but it doesn't really matter, does it?