Wait...what?! Trump exempts electronics from China tariffs

Um...what's going on here??

Despite my busy Saturday, I wanted to scratch out some thoughts, because this new exemption struck me as important.

I tell you what I know about the details, but while we’re very far from out of the woods, I found this a little bit hopeful re where this trade war is headed. That’s “a little bit.”

Why? Because it suggests that a thin shard of reality is working its way into what has been a largely closed system. First, the bond market selloff revealed that Trump does have a pain threshold. Now we see a realization that a confiscatory tariff on Chinese tech imports would severely damage the U.S. economy, so he’s backing down again, this time on a Saturday afternoon. Nothing to see here, folks. Move along.

The new guidance excludes tariffs on smart phones, computers, semiconductors, modems, routers, flash drives, solar cells, flat panel TV displays, memory cards, and a few other electronics. That’s about a quarter of China’s exports to us, and, according to the NYT, should the reciprocal tariffs come back on, “64 percent of U.S. imports from Taiwan, 44 percent of imports from Malaysia and nearly a third of imports from both Vietnam and Thailand” would also be exempted.

As one tech researcher put it:

“This is the dream scenario for tech investors,” Dan Ives, global head of technology research at Wedbush Securities, told CNBC. “Smartphones, chips being excluded is a game changer scenario when it comes to China tariffs.”

Ok, what the H-E-double-toothpicks is going on here?

First, I mean it when I say we are so not out of the woods. There’s still a new 20% tariff on China, and the Times reports that:

…any relief for the electronics industry may be short-lived, since the Trump administration is preparing another national security-related trade investigation into semiconductors. That will also apply to some downstream products like electronics, since many semiconductors come into the United States inside other devices…These investigations have previously resulted in additional tariffs.

And there’s every reason to believe that Trump’s will continue to bully trading partners, incent groveling, and act from within his alternate reality wherein reindustrialization is waiting for America on the other side of sweeping tariffs.

But he has now shown in two separate cases that he will backdown when threatened. In the second case, it didn’t even appear to take an obvious crisis. Probably some of his tech bro funders explained to him that we weren’t going to quickly stand up domestic production in that list of goods above, and that U.S-made iPhones could cost over $3,000.

Readers know that I like to keep any Trumpian analysis simple. When you’re trying to figure out this White House’s moves, a close shave with Occam’s Razor is the way to go. So, here’s the big picture, as I see it.

Trump came in for term 2 with a self-perceived mandate to remake the global economy in his image, and to do so on his own with no one to stop him. His total misunderstanding of global trade, amplified by some (not all) irresponsible advisers, along with his instinct to punish everyone who was “ripping us off”—which, to be clear, meant everyone who sold us stuff we wanted at agreed upon prices—led to the trade war.

But reality being what it is, markets imploded. He withstood a lot more losses in equity values than he did in Trump 1, but when the bond market began to reflect cracks in America’s safe-haven status along with a related dash-for-cash among bond holders here and abroad, sending interest rates up at a time when we’re servicing almost $30 trillion in public debt, he blinked.

Similarly, a 145% tariff on $440 billion in imports based on the absolutely fantastical belief that tech production in China can seamlessly, spontaneously move to our shores appears to have been too much for even this team to sustain.

It’s too soon to judge just how much reality they’re taking on board, and it will surely be a lot less than we want and need. And if you’re thinking, as you should be, “why did we have to go through all this market turmoil, wealth loss, and whiplash, just for you to backdown when it became clear how nuts it was??!!,” I’m with you.

Moreover, real damage is done, damage that I fear will take years to unwind. Clearly, America is no longer a reliable trading or geopolitical partner, at least not for now. We’ll soon see if some of those recent credit flows away from American sovereign debt reverse course, or if the Treasury has a pay a hefty Trump-risk-premium to service our debt.

But this is good news, for now, and, at least for today, my head is spinning a little slower.