Trump Now Threatens Tariffs on All Goods from China: $450 Billion

The markets are reeling a bit today and bond yields are falling on news of escalating trade war threats.

China pledged to strike back on Trump's announcement of $200 billion worth of tariffs on Chinese goods. But before China could even respond, Trump threatened to put a tariff on all goods from China in belief the US Can Win a Trade War With China.

Peter Navarro, a White House trade adviser, said on Tuesday morning that the United States had given China numerous opportunities to negotiate and change policies that have cost Americans millions of jobs, and the Trump administration was now prepared to impose tariffs on $450 billion of Chinese goods in order to force Beijing to bend.

“President Trump has given China every chance to change its aggressive behavior,” Mr. Navarro said in a call with reporters. “China does have much more to lose than we do,” he added, saying that a trade clash would affect China much more than the United States, given China exported nearly four times the value of goods to the United States last year than the United States sent back.

"Winning" Defined

Trump has a peculiar definition of winning. If the US loses less than China, that's called "winning".

US Goods Exports to China

Fred does not have a similar chart for US imports to China.

How can China impose like tariffs? Answer: It can't, directly, on goods as shown by the following Census Department Foreign Trade Charts.

US Goods Trade With China in 2018

US Goods Trade With China in 2017

In 2017, China imported about $130 billion in goods from the US. The US imported $505 billion in goods. The US has a small trade surplus on services.

The charts show China will have a difficult time retaliating if Trump does indeed place tariffs on all goods from China.


It is on this lose-lose basis that Trump expects to "win".

Note that "winning" will increase costs of all US manufactured goods that use any parts from China. In regards to steel alone, the US has about 140,000 steel production jobs. The US has about 6.5 million jobs that depend on steel.

Winning by Losing

  1. A Fed study shows "Tariffs Kill High-Paying American Manufacturing Jobs and Businesses".
  2. Auto job losses alone are likely to hit 45,000 as noted in Pandora's Box: Another Look at Steel Tariffs.
  3. On June 8, I noted Three US Tire-Chord Makers Threaten to Close Doors Due to Trump Tariffs.

Trump believes China will lose more. This we call "winning".

Mike "Mish" Shedlock

No. 1-22

You generally have it right, but to be precise...

  1. Chinese goods are sold in Yuan, so if a US company buys Chinese goods, the first thing they need to do is exchange USD for Yuan in Forex. This drives up the value of Yuan in relation to USD since Yuan is in demand and USD is in supply.
  2. The Yuan is given to a Chinese merchant for the goods.
  3. The Yuan accumulates in banks in China which makes it's way to the PBoC.
  4. The PBoC doesn't like the fact the Yuan has strengthened, so they take the Yuan and exchange it for USD in Forex to do the opposite of step 1.
  5. So now the PBoC owns a lot of USD, but is limited in what they can do with it since most governments wouldn't welcome a foreign central bank buying parts of their country, and they have billions of it, so they have to buy something that's worth billions. The only thing they can realistically buy is US treasuries or similar.

I agree, many Chinese people are doing all that they can to get their wealth out of China. In particular, they buy lots of property London. The Chinese want their money out because China is unstable in many ways: debt, demographics, corruption, automation, geo-politics. The Chinese government needs the Yuan to be held in reserve around the world so that it can export inflation, like the US does, and stabilise its economy. China wants the reserve status that the US has and China is going the right way about getting it. Trump will 'win' his trade war but the price to the US will be the petrodollar system and the hegemony that comes with it. If China manages to persuade Saudi to price its oil in Yuan (gold backed or not) then 'losing' the trade war will be a very small price to pay.


Trump is walking into a trap. China now has moral authority to de-dollarize. China will no longer purchase any US debt; wind-down its US debt holdings and, most importantly, no longer accept US dollars for any of its goods and services from anybody. This will push up US interest rates and pave the way for the Yuan to take a greater role in international transactions and maybe become a reserve currency. The biggest mistake that Trump can make now is to sanction China’s US debt holdings by making it non-redeemable and non-transferable; this would case mass flight from US debt. If China did not want the above then they would have simply devalued their currency in order to absorb the initial 50b sanction but they didn’t, they chose to provoke Trump into destroying the dollar – and it is working.