How China is faring in US trade war against Trump
WASHINGTON (TNND) — President Donald Trump’s trade war against China is causing rippling effects through the U.S. domestic economy, as Americans brace for uncertainty and economists warn of a possible spike in inflation and unemployment. But the maximal tariffs are also being felt in Beijing.
While the 145% tariffs on imports from China are starting to take their toll on the country’s export-dependent economy, China is clapping back with 125% duties on U.S. goods. And American farmers are taking a hit after Beijing stopped buying most agricultural products from their main trade partner.
The world’s second-largest economy is feeling the heat too. China’s factory activity contracted significantly in April, according to data from a factory survey, as Trump’s tariffs are biting. Manufacturers front-loaded large amounts of shipments in anticipation.
Chinese factory owners are now furloughing and laying off workers as shipments begin piling up at ports. White House officials believe they have the upper hand in the fight, arguing the debtor almost always has the advantage over nations with high surpluses.
“We saw some very poor [gross domestic product] numbers out of China yesterday. We’re now seeing very large estimates of job growth loss from 5 to 10 million jobs,” Treasury Secretary Scott Bessent told FOX Business earlier this month. He’s also argued the tariff blitz is unsustainable for Beijing.
To blunt some of the impact, China’s central bank governor is outlining plans to cut interest rates and reduce reserve requirements to free up more funding for lending. In addition, the government is also increasing the amount of money available for industry upgrades.
There are also plans to wean Beijing off of exports. Chinese financial officials are trying to incentivize citizens to trade in vehicles for newer purchases while Beijing is making inroads throughout Asia in hopes of hammering out trade agreements elsewhere.
It’s also working in the Pacific Islands to create bilateral and mini-lateral deals, mainly to satisfy its need for resources.
Even so, China has dramatically increased trade with countries in the islands in recent years, but overall trade there accounted for only 0.2% of China’s global trade in 2022, according to the Barcelona Center for International Affairs. Beijing’s work comes as the U.S. is threatening to impose worldwide tariffs.
Trump pushed pause on a more aggressive tariff push that would impose duties on virtually every country in the world. White House officials say they are working to establish new trade deals with most of the nations included on the president’s list of targeted countries.
In the meantime, the U.S. economy contracted in the first quarter, and the financial markets continue wobbling from day to day as investors gauge where the administration might go next on trade. And as U.S. ports dry up, some financial analysts believe the tariffs are manageable for American businesses.
Imports are down but not catastrophically, according to Steven Englender, an analyst at Standard Chartered in the United Kingdom.
The volume of products coming from China is down almost 50% from mid-April, which was already very high given that importers were stacking up their inventory as they geared up for pain, Englender said in a note to investors. The current level is about where things stood in 2023, he argued.
“Keep in mind there may be substitutions from elsewhere,” Englender wrote. There may be temporary delays as U.S. importers figure out the practicalities of dealing with the new tariffs.” The U.S. economy is still strong right now and has been through worse supply shocks, he added.
The Federal Reserve is not taking any risks, though.
After deciding not to drop interest rates, Federal Reserve Chairman Jerome Powell told reporters on Wednesday that policy makers are taking a wait-and-see approach to what happens on trade. Powell said variations on the word “wait” dozens of times during his comments.
Powell believes the restrictions Trump is placing on trade could lead to stagflation, which would put policymakers in a bind. They’d have to decide whether to hike rates to deal with rampaging inflation or drop them to goose the economy even more to avoid job losses.