Tariff Fight Knocks Off China as Top U.S. Trading Partner

Date: Monday, August 5, 2019
Source: The Wall Street Journal

Data released Friday showed that Mexico was the top trading partner for the first half of the year, followed by Canada

WASHINGTON—The standoff between Washington and Beijing has cost China its position as the U.S.’s top trading partner, a shift that could accelerate as President Trump moves to ratchet up tariffs even more.

Data released Friday showed that Mexico was the top trading partner for the first half of the year, followed by Canada. Imports from China dropped by 12%, and U.S. exports to China fell 19%, as tit-for-tat tariffs and other barriers imposed by Washington and Beijing took their toll.

“These are double-digit declines after over 30 years of steady and very substantial growth,” said C. Fred Bergsten, a founding director of the Peterson Institute for International Economics. “It has a much broader connotation and implication than just economics, serious as that is.”

Stocks swooned for a second day Friday, as Beijing vowed to retaliate if Mr. Trump makes good on his threat from a day earlier to impose 10% tariffs Sept. 1 on $300 billion in Chinese goods that are currently not subject to levies. The Dow Jones Industrial Average closed down 0.4%.

With expectations dimming for a deal with China, the White House is turning its attention to other fronts.

U.S. and Japanese officials met Thursday to discuss an agreement to increase U.S. farm exports. And on Friday, Mr. Trump touted a deal that he said would increase duty-free U.S. beef exports to the European Union by 46% from their current level of $150 million.

“The agreement we sign today will lower trade barriers in Europe and expand access for American farmers and ranchers,” Mr. Trump said.

Those farmers and ranchers have borne the brunt of Mr. Trump’s campaign to force China to level the playing field for U.S. businesses, as Beijing has retaliated by curbing purchases of U.S. soybeans, corn, pork and other products.

But the anticipated boost from that deal pales in comparison to U.S. trade with China.

According to a Commerce Department report Friday, the total value of bilateral goods exchanged with China fell 14% in the first half of the year to $271.04 billion.

After holding the top spot among U.S. trading partners from 2015 to 2018, China now sits at No. 3, and is now smaller than Mexico for the first time since 2005.

The tariff dispute, along with cooling global economic growth, has contributed to a stagnation in total U.S. exports to the world and a widening of the trade deficit.

Some administration officials view tariffs as a short-term negotiating tool, though many corporate executives are beginning to hunker down for a protracted dispute. Mr. Trump and his aides say the fact that China sells more to the U.S. than vice versa gives them leverage in discussions.

“If they don’t want to trade with us anymore, that would be fine with me,” the president said Thursday. “We’d save a lot of money.”

Many economists dispute Mr. Trump’s view that trade deficits are inherently bad, saying they simply reflect contrasting conditions in open economies. However, a widening gap does subtract from U.S. economic growth, and trade has weighed on U.S. gross domestic product in three of the past four quarters.

The U.S. economy has nonetheless expanded faster than other advanced economies this year and last, while global growth has cooled. This has boosted U.S. appetite for imports and depressed foreigners’ demand for U.S. exports.

Imports to the U.S. rose 1.5% in the January-to-June period from a year earlier, to $1.568 trillion.

Exports, meanwhile, were virtually flat in the first half of the year at $1.252 trillion. Excluding services, shipments of goods produced by American farmers and manufacturers fell, as China reduced purchases from the U.S. while other economies slowed.

Those trends illustrate an 83-year-old economic principle that says tariffs on imports ultimately end up acting as a tax on exports. The upshot: America’s overall trade gap widened 7.9% in the first half of 2019 from a year earlier, to $316.33 billion, despite tariffs aimed at narrowing it.


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