7 August 2019
Bob Cunneen, Senior Economist and Portfolio Specialist
After a temporary truce, President Trump has announced a further 10% tariff on US$300 billion in Chinese goods imports. This follows the current 25% tariff applied to Chinese goods worth US$250 billion. President Trump has also added to this conflict by accusing China of “currency manipulation to steal our businesses and factories”. This rapid escalation of trade tension since 1 August has caused considerable turmoil in global financial markets.
President Trump seems to be making a desperate attempt to reduce America’s large trade deficits. In the past year to June 2019, America was running an annual goods deficit of US$887 billion (black line). The key contributors to this trade deficit are the immense US$400 billion deficit with China (red line) and the US$213 billion import bill from Europe (blue line). For the White House, this large import bill shows that Chinese and European exporters see ‘America first’ as their key market for selling their wares.
Yet US corporations and consumers are the primary drivers of these imports. US corporations have utilised China as a cheap production source for goods, while US consumers have benefitted from lower prices. Applying higher tariffs to these imports will only threaten US corporate profits and raise consumer prices. So President Trump’s ‘art of the deal’ negotiation is likely to lead to further aggravation for both ‘Main Street’ and ‘Wall Street’ rather than curb the US trade deficit.
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