In Trump’s America, the consumer is still king

The White House’s assertion that Donald Trump’s tariff policy is a cunning plan whose brilliance will soon become apparent suffered yet another blow at the weekend. After reversing his initial duties on imports from dozens of countries, except China, to avoid a market rout, the President announced that smartphones and computers would be exempt, including those from China, since that is where most originate.

The reason for this latest volte-face was that US consumers were facing a doubling or more in the prices of their favourite tech goods and were dashing to the shops to clear them out before the tariffs took effect. That would have led to shortages and even higher prices once levies of 125 per cent were imposed.

Moreover, these tech goods will be exempt from all tariffs, including the baseline 10 per cent that the President insisted would be retained come what may. They also include other electronic devices and components, such as semiconductors, solar cells and memory cards.

The rationale behind the tariff policy is that too many goods consumed in America are made abroad, and making imports more expensive is a way to “onshore” production. Another aim was to raise funds for tax cuts.

But exempting the very goods that this policy was supposedly aimed at undermines both of those ambitions. It is now being suggested that the exemptions will only be temporary, compounding all the uncertainty engendered by the tariffs.

With so much chopping and changing, it is hard to make sense of Mr Trump’s purpose, even though his allies continue to insist the policy is working. By what measure? The President says it is bringing “a lot of money” into America, but if the aim is to deter consumers buying foreign goods, those revenues must be discounted as imports fall. 

This farrago has at least confirmed the President’s view that his country outsources too much of its consumption, especially to China.

The White House said the President “has made it clear America cannot rely on China to manufacture critical technologies such as semiconductors, chips, smartphones, and laptops”. But it would take years to build the factories to replace them and, in the meantime, the price of gadgets Americans love was about to shoot up. Just like he could not buck the bond market, Trump is finding out that he has another powerful adversary: the American consumer.