Suddenly postponing the increase in tariffs on Chinese goods, President Trump may have a bigger gift in 2020

Decision to postpone tax increase

President Trump decided to postpone imposing new tariffs on Chinese goods.

According to Business Insider, the US government announced on August 14 that it would exempt some Chinese goods from the new tariffs as planned. The new tariffs were supposed to take effect on September 1, but will be postponed until the end of this year.

“Certain products will be removed from the new tariff list based on health, safety, national security, and other factors. These items will not be subject to the 10 percent tariff,” the Office of the US Trade Representative said in a statement. Cell phones, laptops, video games, toys, computer monitors, certain types of footwear, clothing, and more will be subject to the tariff delay until December 15.

The Office of the U.S. Trade Representative added that the move followed a public hearing and comment period. Hundreds of companies protested the escalating trade war with China in June, warning that the planned tariff hikes would raise costs for families and hurt American jobs.

Political calculation

President Trump’s decision to delay new tariffs sent US stocks soaring on August 14. However, according to the Washington Post, the decision may have a more important purpose than the stock market: Trump’s re-election hopes. Therefore, it is likely that the trade war with China will continue, at least until after the election.

The chances of re-election are even greater as the US economy is doing well. President Trump’s approval ratings have been low for some time, but polls have consistently shown that voters give him high marks for his handling of the economy.

If the economy falls into a recession, as some economists fear will happen due to the trade war, President Trump's chances of re-election will be significantly reduced.

Does President Trump have a political calculation when postponing the tax? Photo: AP

These calculations have not stopped Mr. Trump from escalating the conflict with China so far. So why is he changing his mind now?

The president’s decision may have just the right implications for the Christmas season. Gift giving is a big deal. The National Retail Federation estimates that 30 percent of many retailers’ annual business comes during the holiday season. Holiday sales account for about 19 percent of annual retail sales.

President Trump’s initial decision to increase tariffs would likely have caused prices to rise just in time for Christmas. Items on the list, such as computers, cell phones, video games, and toys, are all popular gifts. If President Trump had insisted on imposing a 10% tariff on these items, he would have risked being seen as the “bad guy who stole Christmas” with tariffs.

By delaying the tariff increase until December 15, President Trump ensured that there would still be cheap Chinese goods for the holiday season. Stores typically stock up months in advance. Postponing the tariff increase ensures that consumers won’t have to agonize over higher prices during the busiest shopping season of the year.

Mr. Trump himself admitted this: “We did this for Christmas, just in case some of the tariffs would have an impact on American consumers.”

According to the Washington Post, the atypical statement may be the result of lobbying and advice given by Mr. Trump’s advisers in the context of the 2020 presidential election approaching. Surely no one wants to start their re-election campaign with the image of angry shoppers.

Delaying the tax hike until December allows U.S. economic growth to remain positive during that critical period. Even a small positive impact from delaying the tax could make the difference for a candidate. It could mean winning or losing.

According to the electoral vote forecast model of American political scientist Alan Abramowitz, President Trump will win the election even if he continues to have low approval ratings,

Accordingly, if GDP growth in the second quarter is 2%, Mr. Trump will win 283 electoral votes even if his approval rating is -10%. But if growth is only 1%, the electoral votes that President Trump receives will drop to 263, 7 votes lower than the number needed to win the election.

The new tariffs would still likely weigh on second-quarter GDP growth, but a four-month delay could reduce the impact enough to achieve political ends.

Meanwhile, China shows no signs of giving in to US demands and will likely tolerate low growth through the US election. How long the trade conflict lasts therefore depends on President Trump’s re-election chances.

If re-elected, Mr. Trump would have four more years of freedom to continue to pressure China. The US may be in recession by late 2020 or early 2021, but history shows that the ruling party can recover politically from economic downturns early in a presidential term.

Analysis of the tariff delay has so far focused almost exclusively on the short-term economic impact. But the political impact could be much more important. President Trump’s early Christmas present to himself could lead to an even bigger gift in 2020: four more years in the White House.