US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin returned from two days of talks in Shanghai on Thursday. After debriefing President Trump on the results the president announced a decision to apply a 10 percent tariff on $300 billion worth of Chinese products.

This announcement would answer the question of whether the Chinese were willing to restart discussions from the previous point of contention. Obviously they are not.

The Wall Street financial/investment class will go bananas. U.S. based multinationals who have invested massively in Chinese manufacturing are apoplectic. The ‘Wall Street’ -vs- Main Street battle now enters a new phase of confrontation and adversarialism.

As we have discussed, President Trump consistently implied he did not see how any deal with China is possible unless they were willing to fundamentally restructure their trade position. It has been clear -validated by the G20 outcome- that President Trump is not going to accept anything less than a full and complete structural change in the U.S. trade position with China. Lighthizer’s severe compliance and enforcement clauses, specific to each unique trade sector, are non-negotiable.

There was always only a very small chance a trade deal with China will be reached. The reforms within the original Lighthizer and Vice-Premier Liu He agreement were antithetical to Beijing. Chairman Xi Jinping and the communist politburo rejected them.

For Beijing the compliance and enforcement sections within the agreement were too severe and did not allow China to retain control over the trade terms.

The agreement was rejected.

President Trump understands Chairman Xi is looking at this as a zero-sum position. As we stated earlier, it’s was not a matter of “if” Trump would apply more tariffs; it was always a matter of “when” Trump would apply the tariffs.

Price inflation is low because manufacturing economies (EU and China) are devaluing their currency, and subsidizing their industries (China), in an effort to avoid Trump’s trade policies (tariffs). Their efforts increase the value of the dollar and we are importing deflation. As a consequence of those factors, and the high value of the dollar, any tariffs on Chinese imports will not raise consumer prices.

The .25 point lowering of the federal reserve rate did nothing to lower the value of the dollar. Now is the perfect time to hit China will larger tariffs. There will be no U.S-China trade deal unless Beijing agrees to the compliance issues.