Actions and reactions

The Trump administration keeps putting pressure on China to sit at the table and talk about tariffs. It’s not clear yet to what degree the strategy is working, but there may be some dents on the armor. China has stopped publishing some statistics, such as youth unemployment, surely because it doesn’t look good and don’t want to show any weaknesses. But to every action there is a reaction, and the U.S. is also subject to pressure. In the upper part of the chart below you can see an interesting statistic; how companies are going to handle the price increases due to tariffs. 76% of them list as number one action plan to pass it on to consumer. Or at least they are going to try to pass it on. If it works, you will get as a result an inflation spike, not necessarily a sustained one, but a spike nevertheless. And that’s what the bottom chart below shows. And if it doesn’t work, because the consumer simply can’t afford it, we might get a slowdown or a recession, since in order to continue selling, margins will be compressed, and earnings will fall. What if we become great again and onshoring becomes a reality and goods produced in China are suddenly made in the US at a higher cost? Would that solve the problem or worsen it?

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