China announced Friday it would slap tariffs on another $60 billion in U.S. goods in retaliation for Donald Trump pledging earlier this week to ratchet up tariffs on $200 billion in Chinese goods from 10 percent to 25 percent.
Unfortunately, this appears to be going in the worst of all possible directions. Trump sacrificed leverage with China by failing to build a global coalition that would take a united stand against the behemoth trading partner. Now, Trump appears bent on escalating with no exit ramp in sight because he began prosecuting this campaign in the dumbest way possible. Politico writes:
White House National Economic Council Director Larry Kudlow said in an interview on Bloomberg TV Friday morning that China “better not underestimate President Trump’s determination to follow through on our asks.” He added that potential talks between Trump and Chinese President Xi Jinping could happen “if the opportunity presents itself.”
Good luck on getting those talks, Kudlow. In the same interview, he also called China’s response “weak” and said, “their economy is lousy, investors are walking out, the currency is falling.” That type of diplomacy should have them beelining to the bargaining table. (Also, China has purposely deflated its currency in order to significantly lessen the blow of the tariffs.)
Trump has already hit China with 25 percent tariffs on some $34 billion in goods. He remains fixated on the U.S. trade deficit, but to no good end. Last week he touted an overall drop in the U.S. trade deficit by more than $50 billion as “one of the biggest wins” of last quarter’s economic report. Per usual, he was playing the short game even as economists warned the deficit dip would not last.
U.S. exports had surged as U.S. trading partners worked to get out in front of the tariffs they knew were coming by stockpiling goods before the tariffs hit. So the dip in the trade deficit was a momentary bubble, not a trend. And that’s exactly what the latest economic numbers revealed Friday.
The overall trade deficit in both goods and services also increased in June to $46.3 billion, a jump of more than 7 percent from the May tally. At the current pace, the overall trade deficit will rise for the second consecutive year under Trump, surpassing last year’s level of $552 billion.
All that is to say: Trump’s big trade deficit “win” was a farce. That said, most economists believe the overall trade deficit does not warrant the emphasis Trump is putting on it (even if some agree that China’s trade practices are indeed problematic).
The entirety of the U.S. trade deficit in 2017 was just 2.8 percent of the U.S. gross domestic product of $19.5 trillion. That’s a steep drop from 2006, when the trade deficit represented a peak of 5.5 percent of the nation’s $13 trillion GDP.