The latest set of statistics from the Bureau of Economic Analysis (BEA) shows all of the professional pundit claims of higher prices on imported goods due to Trump tariffs are simply disconnected from reality.  In actuality the year-over-year prices of import products are actually dropping:

U.S. Import prices fell 0.3 percent in May, the first monthly decline since a 1.4-percent drop in December. Import prices advanced 1.8 percent from December to April before the downturn in May. The price index for overall imports decreased 1.5 percent over the past 12 months, matching the drop in January. These were the largest over-the-year declines since the index fell 2.2 percent in August 2016. (See table 1.)

The U.S steel and aluminum tariffs have been in effect globally since 2017. Tariffs on softwood lumber (Canada) & durable appliances (S. Korea), same duration.  Additionally the first set of tariffs on China is now well over a year old; and the second set of expanded tariffs on China began a month ago; again, no material impact to the delivered price.

Despite two years of claims by the professional media that tariffs would lead to higher prices for U.S. consumers, as you can see above the reality is quite different.

In part this is driven by lower fuel and energy costs.  Additionally, China is attempting to subsidize its affected industry; and several nations, including China, are attempting to retain export status by adopting monetary policies that devalue their currency.  All of these efforts at countering the U.S. tariffs are having a deflationary impact.

[…] Imports by Locality of Origin: The price index for imports from China edged down 0.1 percent in May following a 0.2-percent drop the previous month. Import prices from China have not recorded a monthly advance since the index rose 0.1 percent in May 2018. Prices for imports from China declined 1.4 percent over the past year, the largest 12-month drop since a 1.6-percent decrease in February 2017.

Import prices from Japan recorded no change in May, after a 0.1-percent decline in April. Prices for imports from Japan also recorded no change from May 2018 to May 2019.

The price index for imports from Canada declined 1.0 percent in May, driven by lower fuel prices. (Link)

President Trump has taken the leverage of economics to levels of geopolitical strategy never seen before.  Nowhere is the genius strategy more clear than in the way Trump has positioned the trade reset and confrontation with China.

In hindsight every move since early 2017 including:  (1) the warm welcome of Chairman Xi Jinping to Trump’s Mar-a-Lago estate; (2) the vociferous praise poured upon Xi; (3) the November 2017 tour of Asia; (4) the direct engagement with North Korean Chairman Kim Jong Un; the strategic relationship with Japanese Prime Minister Shinzo Abe; and a host of smaller nuanced moves have been quietly building toward a conclusion.

The upcoming G-20 summit is the last chance for Trump and Xi to reconcile considerable differences and President Trump has the strongest strategic position any Chinese official has ever faced.

After Beijing walked away from previous agreements between USTR Robert Lighthizer and Vice-Premier Liu He, Trump initiated a series of punishing economic consequences that had to have been well planned in advance.

The economy in China is reeling from the pressure applied; and stunningly it has only been a month since the consequence phase began.

In addition to tariff increases, the U.S. blacklisted Huawei Technologies Co., threatened other major Chinese tech companies and essentially cut-off China from the international supply chain it needs to sustain itself.  Beijing responded by drawing up a list of “unreliable entities” and making threats against any enterprise that would walk away from business engagement with China.  The totalitarian response has worsened the situation, and more companies have announced their intent to decouple from Beijing.

An important aspect, missed by most observers, is the ideology and outlook within any Chinese engagement. Quite simply, if it does not benefit China it is not done.  Therefore any negotiation with China is challenging because Beijing will cede no ground they view as already won.

China does not believe in ‘concession from current position‘ within any terms.  Ultimately this is the reason why the negotiated agreement by Lighthizer and Vice-Premier He was dismissed by Beijing and talks collapsed. China will not cede an already attained position.

China never negotiates terms where they give ground.  Almost all negotiation with China has historically surrounded time.  To appease the West the longer-thinking approach of China has been to negotiate winning more slowly, but they will never retreat on previously won gains.

However, in advance of the G20 Summit in Japan President Trump has positioned Chairman Xi in a lose/lose dynamic.  This forces the outlook of Beijing into a state of internal anxiety.  Only President Donald Trump could have achieved this position, is really is remarkable and is noted within this Bloomberg article:

(Bloomberg) By now, Xi Jinping is used to Donald Trump’s tariff threats. But the U.S. president’s latest ultimatum is personal, and the Chinese leader’s response could have far-reaching consequences for his political future.

Trump on Monday said he could impose tariffs “much higher than 25%” on $300 billion in Chinese goods if Xi doesn’t meet him at the upcoming Group of 20 summit in Japan. China’s foreign ministry — which usually refuses to provide details of meetings until the very last minute — declined Tuesday to say whether the meeting would take place.

The brinkmanship puts Xi — China’s strongest leader in decades — in perhaps the toughest spot of his six-year presidency. If Xi caves to Trump’s threats, he risks looking weak at home. If he declines the meeting, he must accept the economic costs that come with Trump possibly extending the trade conflict through the 2020 presidential elections.

“Whether they meet or not, none of the possible scenarios are good for President Xi or the economy in the long run,” said Zhang Jian, an associate professor at Peking University. “You don’t have a good choice which can meet the needs of the Chinese economy or Mr. Xi’s political calculations.”  (read more)

Read that again carefully….

“If Xi caves to Trump’s threats, he risks looking weak at home. If he declines the meeting, he must accept the economic costs that come with Trump possibly extending the trade conflict through the 2020 presidential elections.”

That is what you call a Lose/Lose scenario.

China NEVER faces lose/lose situations.  The Chinese culture doesn’t even have a frame of reference for a position that includes ‘less losing’ amid better options.

For President Trump to have navigated Chairman Xi into such a position is the pinnacle of strategic success. In the long history of western engagement with Beijing it has never happened, ever.

President Trump is now playing with Chairman Xi like a mouse in a maze.

Trump wants to go to the full confrontation position. Donald J Trump has been talking about this for thirty years.  Additionally, for the past two years he has strategically laid the groundwork and aligned the allies needed for this final confrontation.  President Trump is looking for an excuse to apply the scale of tariffs on China that will crush their U.S. export business – and – force them into massive state subsidies to retain their manufacturing model. This approach creates pressure to retract from preexisting global financial obligations.

President Trump has threatened more tariffs and more consequential action as it relates to non-tariff barriers, IP protection, forced technology transfers etc. as a result of China  reneging on their prior agreement.  In essence, President Trump has put Chairman Xi under threat.  Beijing’s traditional and cultural position would be no-meeting and no negotiation while under threats.

However, as a baseline disposition President Trump doesn’t want Xi Jinping to meet with him.  The appearance of a ‘slight’ is the opening Trump can exploit to apply the 25% tariffs to the remaining $350 billion of imported Chinese goods. This will crush his adversary.

So what does President Trump do… while the tariff threat and trade punishment looms (and he keeps reminding everyone of it), he levels massive amounts of praise upon Chairman Xi making the pressure almost unbearable.

Laughably, U.S. President Trump is wearing the panda mask, and simultaneously applying the dragon approach.  Yes, Trump is using China’s own duplicitous strategy against them.

Chairman Xi cannot meet with President Trump or his appearance implies a willingness to negotiate terms; and that reverses the dismissive position previously outlined by Beijing when they rebuked the earlier agreement. A meeting now would appear as weak.

However, if Xi refuses the G20 meeting he will be walking into a trap and allowing President Trump to take all adversarial action that could indeed collapse Xi’s economy.

Worse still, Beijing cannot fall-back-on their historic approach and begin shooting missiles from their proxy province of North Korea to attain leverage and negotiating position… because President Trump has already blunted that ability by meeting with Chairman Kim Jong Un.

Oh, the G20 is going to be epic.

…and LOL, the G20 is on Trump’s home ASEAN turf, Japan, with Trump’s good friend and golf partner Prime Minister Abe.