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.

Lose-Lose

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

Comments (22)
No. 1-22
Irondoor
Irondoor

If China imposes tariffs on imported US goods in dollar amount equal to 3.9 x the tariffs the US imposes on Chinese goods, then the tariff dollars (but not the trade dollars) will balance. Other than continuing to screw companies doing business in China and stealing our intellectual property that's about all they can do directly. I'm sure they will think of something else to find our "uncle" point. Like convincing the N Koreans not to do a deal with Trump or invading Taiwan to showing the world that they are equal to the US in the western Pacific. But, they don't know or understand Trump. He's convinced that this is showdown time with the Chicoms. He thrives on chaos while the Chicoms want control and to do business in their own intimidating fashion.

FelixMish
FelixMish

I sure hope this "policies that have cost Americans millions of jobs" is another "weapons of mass destruction". That is, something thrown up against the wall and sticking, used to rally the public behind a particular initiative. An initiative, for instance, like getting China to more open up their internal market. Consider, for instance, how quite a number of outside companies were and are shut out of China. Google comes to mind.

So far as "costing American jobs". Thank God. While those jobs were lost they also changed from being "good manufacturing jobs" to being "sweat shop labor". Same job. Time marched on.

Many Mish readers can probably remember those factory jobs. Loud, dangerous, low pay (though relative to the times, the pay could be good). Those jobs sucked. And they paid less than what you can get from the gov'ment now for being a warm body.

Those jobs went to really, really poor subsistence farmers for a century. The world is running out of subsistence farmers, so those jobs will be done by machines before the shouting's over. Those jobs are already leaving China, though China still has several hundred million subsistence farmers.

Where does a US President get the power to significantly crank up (or down) particular taxes like tariffs? I'd think that would be a congressional thing.

All in all, watching this is like watching the thinking behind a weird group comprised of "wage and price" controllers and those who think its a great idea to "help" subsistence farmers with clever stoves and water filters. Count me out of both groups. I'll vote to keep taxes spread as widely as possible rather than trying to use them to manage an economy like a good soviet should. And, I'll vote for "helping" by allowing and encouraging people to change from subsistence farming to neurosurgery.

channelstuffing
channelstuffing

How prey tell do you have a trade war when you poduce nothing?Unless china puts tariffs on treasuries (lol),that's our number one (only) export...dept (and WAR)

Sechel
Sechel

Canada may export more to the U.S. than vice versa but there are many U.S. companies trying to expaand in China in a bid to earn a profit such as Apple , Walmart and GM. As a non -democratic country China has a great many tools available to punish American companies. Bottom line, Trump is playing brinkmanship but China can sure bloody the U.S. There won't be any winners.

TexasTim65
TexasTim65

The Cardinal Rule of Relationships (between countries, businesses or friends/lovers) is: "In any relationship, the person with the most power is the one who needs the other the least."

China needs the US way more than the US needs China (they must export since they have no domestic consumption and they've brought hundreds of millions of people from farms to cities so they NEED something to keep them busy work wise or else the social unrest will be off the charts as Michael Pettis has noted so many times). So ultimately Trump has the power in this relationship and he will get whatever he wants. Yes, there is going to be pain for the US, China and who knows how many more countries but in the end he's going to get whatever deal he things is best (whether that's better than what exists remains to be seen since no one knows what the final outcome is going to be).

Incidentally this is why he's able to make demands on Europe, Nato etc because they need the US more than the US needs them.

Realist
Realist

Trade wars are always lose-lose. Trump thinks that the US will lose less than China. Let’s assume he is right and the US economy takes a 100 billion hit, while China takes a 200 billion hit. Then assume the same 2:1 ratio with other countries. Europe 200 - US 100, Mexico 100 - US 50, India 50 - US 25, Canada 100 - US 50, Japan 200 - US 100, Korea 100 - US 50 and so on. Trump is trying to take on every trading partner at the same time while they continue to trade freely with each other. Who will be the biggest loser? Sum it all up and the US gets hurt the most.

SleemoG
SleemoG

If the trade deficit with China is eliminated, then who will buy US Treasuries? Will deficit spending end of necessity?

ZZR600
ZZR600

That's a question I'd like an answer to as well. My basic understanding is that:

  1. US buys goods and exports US dollars
  2. Buyers of dollars buy treasuries
  3. treasuries allow the US to build up a paper debt to finance consumption
  4. therefore fewer imports to the US=fewer exported dollars = fewer purchases of treasuries = inability to finance day-to-day government spending
  5. I presume this is highly deflationary

Mish, is this broadly correct?

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Trade War Treasury Math When the US runs a trade deficit other countries accumulate US dollars. There is no way to hold them as dollars, there is not that amount of currency. They buy Treasuries or other US assets. This is a pure function of math. Sometimes to defend their currencies, they sell Treasuries, so accumulation is not always smooth. I do not know what the endgame of this is. I have two scenarios in a post I am working on now.

Blacklisted
Blacklisted

Smaller govt reduces the need for debt, and more business activity and profits increases tax receipts.

FelixMish
FelixMish

The interesting thing about the money is it apparently goes to the PRC government. One can't help but wonder whether the "PRC government" in this case is what we might call an "oligarchy".

Anyway, some, not all, of the money paid in outside currencies (e.g. dollars) must be changed to Chinese currency. (Some? Probably most goes to buy outside goods. Parts. Raw materials. Ex-pat salaries. Etc.)

The PRC gov does the exchange.

Apparently those internal exchange rates do not match global something-to-yuan rates. Guess who comes out on the short end of the mismatch stick. Not the PRC gov. Not the outsiders who paid the money.

If you're Chinese you can only hope your gov doesn't squander the dough.

Remember when the Japanese were making a ton of money from those foolish Americans back in the '80s? And then they bought a lot of garbage in the US with the dough.

Given the PRC gov's record with their own state-owned-enterprises, I'm thinking there will be a smidge of waste.

MntGoat
MntGoat

China being a dictatorship seems to have a political advantage with a long trade war. They can make any dissidents they don't agree with just "disappear". Then can control what media their people get and control the message. Don't have to worry about ever getting re-elected. Can just force their people to endure hard times.

USA on the other hand has a media that attacks presidents 24-7 (esp conservative presidents), and presidents don't get re-elected if there is a recession. And Americans will start whining incessantly if prices go up or the economy turns.

Blacklisted
Blacklisted

The tarrifs will not be permanent. No pain, no gain. Pay me now, or pay me later. What ever you want to call it, a little temporary pain will be worth long lasting rebalanced trade. If we would've taken our medicine and done the debt reset in 2000, the coming pain would've been significantly less.

Kinuachdrach
Kinuachdrach

What can't go on, won't go on. The trade imbalance (or trade war) that has affected US employment and economic growth for over two decades will come to an end someday, one way or another.

As Winston Churchill said, : Jaw, jaw is better than war, war. China, Germany could turn things around quite quickly by agreeing to import more from the US and by setting up factories to manufacture in the US. But if China & Germany insist on doing this the hard way, so be it. Their trade surplus will still come to an end.

FelixMish
FelixMish

There sure are a lot of people here under the impression "China" is the PRC government and the "US" is the American government. And vice-versa!

"China" doesn't decide to import more. "China" doesn't decide to build factories in the US (or in Malaysia or Viet Nam, or etc.). Executives at a lot of companies decide those things. And most of those companies are no longer of one country. Consider Google employees fussing about doing AI work for the US military. Why wouldn't they? They aren't US citizens and may feel like US baby boomers are planning to extort old-age support from their, the non-US-citzen's, family. (Even US citizens question how much of their tax dollars go to fight WWII again. But that's another story.)

This isn't a high school football game. And gleefully looting the grocery store with which you have a huge trade imbalance isn't clever.

Stuki
Stuki

Per Navarro's (at least stated) (lack of) logic, a nation of diabetics importing 4 times as much worth of single source insulin as it exports in Spider Man movies, has the upper hand in a trade war..... Take about simpleton.....

Pretty much every single valued added activity in the US involves some good or component sourced from China. While, at least as of 10 years ago, Chinese processes were much less singularly dependent on inputs from the US. Heck, much of what the Chinese imports from the US, is almost done out of courtesy. As they could simply copy it 99-100% accurately for less, if they felt like it.

But, the Chinese government, perhaps out of some sort of awe, or to avoid rocking too many boats, or simply to be able to hand out valuable import licenses to it's favorite dilletantes; limits at least the scale to which such "violations" of entirely arbitrary IP "laws," can be violated.

Picking likely (relative) "winners" in this singleminded pursuit of idiocy, depends on which country's producers' costs are the most affected (as well as how many ready substitutes there are for their outputs.) If American makers of almost everything starts facing higher input costs, they'll either lose market share to every country which can more cheaply source components form the lowest cost provider, or they will have to cut costs elsewhere. Elsewhere, when your components are foreign sourced and the rent seekers and taxmen are treated as protected classes, largely meaning labor costs.

pashton
pashton

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.

pashton
pashton

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.

KidHorn
KidHorn

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.