REPEAT: MNI ANALYSIS:U.S. Trade Policy At New, Uncertain Phase

Repeats Story Initially Transmitted at 19:10 GMT Jun 15/15:10 EST Jun 15

By Sara Haire

     WASHINGTON (MNI) - The eventful data and central bank week shifted the

attention away from trade disputes following the G-7's explosive ending blow

between U.S. President Trump and Canada Prime Minister Trudeau, but only briefly

as the Office of the US Trade Representative announced Friday that Trump

approved a plan to place a 25% tariff on at least $36 billion worth of Chinese

imports.

     Upon hearing the potential for the imposed tariffs, the Chinese Trade

Ministry did not hesitate in announcing retaliatory tariffs on U.S. goods that

would be equal in value. However, they did voice their reluctance in delving

into a "trade war," as it is unlikely to be beneficial for anyone.

     President Trump has not been shy about voicing his qualms with current

trade relationships, especially with Canada and China, claiming trade deficits

with these nations are detrimental to the U.S.

--RISK TO OUTLOOK

     However, a study done by the National Retail Federation and Consumer

Technology Association found that these tariffs and retaliatory tariffs would

"lead to four job losses for every job gained and reduce U.S. gross domestic

product by nearly $3 billion."

     This will likely be tricky to navigate for the U.S. in the coming months.

May retail sales showed that consumers are willing to spend more as household

spending has "picked up," according to the Federal Open Market Committee's

statement following their June 12-13 meeting.

     However, as more tariffs are placed on the U.S.'s largest trading partners,

consumers are likely to feel the impact as pricing pressures will rise, which

could dampen household spending and retail sales. The fiscal stimulus package

could soften the blow, but inflation could start to drift higher.

     The FOMC did not address trade specifically it's statement, but in the

weeks prior several Fed officials noted trade uncertainties have been a mild

headwind to some businesses even as risks appear balanced. Policymakers could

address the trade disputes in the coming weeks, but are likely to wait for

incoming data before speculating on the impact on the economic outlook.

--TARIFFS IMPOSED ON CHINA

     USTR announced Friday that after the section 301 investigation into China,

they determined that certain Chinese policies like "Made in China 2025" was an

unfair trade practice that was negatively affecting U.S. commerce.

     After going through the list of Chinese goods originally proposed in April,

the USTR explained that there will be two sets of tariffs imposed beginning July

6. The first set proposed in April was whittled down, covering around $34

billion (USD) of Chinese good imports, imports that will now have a 25% tariff

levied on them.

     The second set covers around $16 billion worth of Chinese imports, but the

list will have to go under further review by the USTR before tariffs are

imposed.

--US/CANADA RELATIONSHIP ON THE ROCKS

     Canada is now facing tariffs on steel (25%), aluminum (10%), and

potentially autos as exemption for Canada, Mexico, and the E.U. expired. Trudeau

announced retaliatory tariffs shortly after and reiterated support for them in a

press conference following the G-7, which drew Trump's ire and a refusal to sign

the joint G-7 communique.

     Despite the apparent strain in the relationship, the Director of the

National Economic Council, Larry Kudlow, remained hopeful about being able to

work out what the administration calls "fair trade" deals, though cautioned in

an interview on CBS there is a chance that a trilateral deal may not be reached.

One option the Trump administration has advocated for is separate trade deals

with Mexico and Canada, given how "different" these countries are as trading

partners.

     Additionally, the insistence on the part of the U.S. to include a "sunset

clause" that would allow for member countries to withdraw from the deal after

five years while terms are negotiated is a major sticking point that has been

met with resistance from Canada and Mexico. Those two countries have countered

with an offer to check-in after five years and review the treaty, but not just

start from scratch.

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com