Global trade strife is facing another series of obstacles as the United States escalates tensions with China – or vice versa. But while Uncle Sam goes toe-to-toe with the red dragon, the current administration is facing inflationary pressures stemming from President Donald Trump’s sweeping, sectoral, and reciprocal tariffs. The good news, however, is that aggregate inflation levels have been cooler than economists’ worst fears.
Tariffs Drive up Some Inflation
Both things can be true at the same time. On the one hand, President Trump’s rendition of springtime for tariffs has not caused the sky to fall. On the other hand, it is disingenuous for the White House to contend that inflation is falling. So, what did the latest Consumer Price Index (CPI) tell us?
The Bureau of Labor Statistics released the September CPI report to ensure the Social Security Administration can make its cost-of-living adjustments, also known as COLA, for benefits. The snapshot of what consumers are making in the US marketplace showed tepid increases.
Last month, the annual headline inflation rate rose to 3% for the first time since January. Despite the jump, the final reading came in lower than the market consensus of 3.1%. The core CPI, which excludes volatile food and energy prices, eased to a smaller-than-expected 3%. On a month-over-month basis, both inflation readings increased modestly below Wall Street estimates.
Steak lovers cried in horror as beef and veal surged 1.2%. Yolk makers cheered as eggs declined 4.7% and are down 1.3% on a 12-month basis. Those who need their daily java fix shrugged off coffee prices dipping 0.1%, mainly because they are up 19% compared to a year ago.
So, what about tariff-sensitive items? As usual, they were mixed. Here is a breakdown:
- Apparel: +0.7%
- Appliances: +0.8%
- Canned fruits and vegetables: +0.6%
- Computers: +0.2%
- Motor vehicle parts and equipment: +0.5%
- New vehicles: +0.2%
- Smartphones: -2.2%
- Televisions: -1.1%
- Tools, hardware, and supplies: -1%
Whether these will be persistent cost pressures remains to be seen. The Federal Reserve’s Beige Book, a periodic summary of economic conditions across the central bank’s 12 districts, shows that while some firms are passing along costs to their customers, many more are reluctant to do so.
Once again, everyone is required to play another round of the waiting game – or, if you find that boring, then Austrian checkers or Indian poker.
What’s the Deal with China?
First, President Trump threatened 100% tariffs on Chinese goods entering the United States. Then, he said a triple-digit level would be unsustainable. Finally, Treasury Secretary Scott Bessent confirmed that he is meeting with a Chinese delegation in Malaysia to help arrange the president’s meeting with Chinese leader Xi Jinping.
The breakdown in US-China relations stemmed from Beijing’s implementing of export controls on rare earths and critical minerals. This prompted a staunch response from Trump, Bessent, and Trade Representative Jamieson Greer.
Amid all the tensions, China has been buying soybeans from Argentina, Washington has been accelerating domestic mining of rare earths, and the world’s two largest economies are heading in opposite directions. In the end, according to the president, the United States and China will likely reach a trade agreement soon. “I think we’ll make a deal,” the president told reporters during a recent meeting with NATO Secretary General Mark Rutte.
Oh, Canada
Canada loves Reagan.
At least that was the message Ontario Premier Doug Ford conveyed when he aired a commercial featuring excerpts from the former president’s April 1987 radio address, although the Reagan Foundation said it was misleading. Either way, this perturbed President Trump, leading him to terminate all trade negotiations with Ottawa.
“TARIFFS ARE VERY IMPORTANT TO THE NATIONAL SECURITY, AND ECONOMY, OF THE U.S.A. Based on their egregious behavior, ALL TRADE NEGOTIATIONS WITH CANADA ARE HEREBY TERMINATED,” he wrote in a late October 23 Truth Social post, later writing:
“CANADA CHEATED AND GOT CAUGHT!!!They fraudulently took a big buy ad saying that Ronald Reagan did not like Tariffs, when actually he LOVED TARIFFS FOR OUR COUNTRY, AND ITS NATIONAL SECURITY. Canada is trying to illegally influence the United States Supreme Court in one of the most important rulings in the history of our Country. Canada has long cheated on Tariffs, charging our farmers as much as 400%. Now they, and other countries, can’t take advantage of the U.S. any longer. Thank you to the Ronald Reagan Foundation for exposing this FRAUD. MAKE AMERICA GREAT AGAIN!!!”
The situation is no longer “tariffying” – it has become a slapstick and thinking man’s comedy, blending the world of 4D chess and the Trumponomics brand of satire.
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