Decreasing US-China Trade Is Worrisome


It’s sometimes said that China is the world’s manufacturer, but the U.S. is the world’s consumer. When there’s less trade happening between these two giants, it’s not good for either one. Neither are the tariffs on that trade.

It’s been a little over two months since China began
shutting down its domestic economic activity (restricting travel, closing movie
theaters, limiting factory workers, etc.) to curb the spread of the
coronavirus.  

New U.S. statistics show the negative effects the coronavirus is having on U.S.-China trade, now that both the supply and demand for globally traded goods have taken a hit with the U.S. significantly slowing its own economic activities.

From January to February, the monthly trade in goods with
China decreased $10.9 billion—mostly from a decline in imports from China.

A decrease in exports to China is generally bad for U.S. producers, and a decrease in imports tends to be bad for U.S. consumers.

Although there was less trade in a variety of goods, the largest decrease in imports from China was of data processing machines and certain telephones. The largest decrease in exports to China was of soybeans, machines for manufacturing semiconductors, and civilian aircraft and parts.

Not all trade with China saw a decrease. There was increased
trade in sorghum, palladium (a metal used in catalytic converters for cars and
dental implants), magnesia (a chemical sometimes used in antacids), integrated
circuits, and medical diagnostic parts.

But including trade with China, U.S. total trade with the world was $15 billion less in February than January. U.S. trade in services decreased $3.1 billion, with the biggest decreases in travel and tourism. A decrease in both imports and exports is worrisome.

Some in Washington would like to see a further decline in trade, but that is unlikely. Americans will continue to benefit by trading hundreds of billions worth of goods every month—including with China.

But decreasing imports and exports suggests troubling
economic times ahead. 

The Cost of Tariffs

Since coming into office, the Trump administration has waged a trade war with China that has resulted in hundreds of billions worth of traded goods seeing higher tariffs.

This has meant an additional $48 billion tax on American consumers and a disruption to U.S supply chains. There have been new tariffs on other imports as well.

A Phase One deal to wind down the U.S.-China trade war was reached in early January, just as the coronavirus took hold in China. At that time, there were punitive tariffs on medical supplies and various chemicals

The Trump administration has since granted more medical supply importers exemptions from these tariffs.

There were reports the Trump administration could pause the collection of certain tariffs for 90 days to allow businesses to focus on production of essential goods, but President Donald Trump has denied these reports.

A Snapshot of US-China Trade

In 2019, the U.S. and China traded $560 billion worth of goods—which made China our fourth-largest trading partner behind the European Union with $856 billion, Mexico with $621 billion, and Canada with $619 billion. The EU also is China’s largest trading partner, with the U.S. a close second.

China accounts for 13% of total U.S. trade and 2.6% of U.S. gross domestic product. For China, trade with the U.S. accounts for 12% of its total trade and 3.8% of its GDP.

China’s domestic economy continues to struggle to recover
from the effects of the coronavirus. And so long as it’s biggest customers are
slowing economic activity, China’s economy won’t return to normal.

In the first two months of the year, large enterprises in
China saw a 40% decrease in profits. One
estimate
suggests China’s economy could contract by 10% in the first
quarter (the months of January, February, and March).

It wouldn’t be surprising to see U.S.-China trade (as well as U.S. total trade with the world), continue to decline over the next month.





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