US deficit numbers revive China fears of Trump trade war

The United States posts its largest trade deficit in four years, leaving observers in China with renewed fears of a backlash against the nation

PUBLISHED : Wednesday, 08 February, 2017, 11:26pm
UPDATED : Thursday, 09 February, 2017, 9:54am

Washington is poised to take tough action against China after the United States posted its largest trade deficit in four years, heightening the risk of a long-anticipated trade confrontation between the world’s two largest economies, observers in China said.

Data released by the US Commerce Department on Tuesday showed that the country’s total trade deficit last year had risen by 0.4 per cent to US$502.3 billion, representing 2.7 per cent of US gross domestic product.

The US trade deficit with China, an issue that is politically sensitive, had dropped. Still, the deficit is the largest among all of the US’ major trading ­partners.

US President Donald Trump has yet to take punitive trade ­action against China three weeks after being sworn into office, but the latest deficit figures have ­revived concerns that he will put his antagonistic campaign rhetoric into practice. On the campaign trail, Trump vowed to impose a 45 per cent tariff on Chinese goods and label the country a currency manipulator. He has since named Peter Navarro, a sharp critic of China, as head of the National Trade Council.

Wang Hejun, head of the trade remedies and investigation ­bureau at China’s Ministry of Commerce, was quoted by the China News Service on Wednesday as saying that Beijing was prepared for tougher tariffs and more trade disputes this year. But he said it would be “meaningless” for the US to impose tariffs, other than to “smear” China.

The US trade deficit with China decreased by US$20.1 ­billion to US$347 billion in 2016, but it is still significantly higher than that of other US trade partners. The deficit is US$69 billion with Japan, US$65 billion with Germany and US$63 billion with Mexico.

Robin Xing, the chief China economist at Morgan Stanley, said China’s large surplus was nothing new, and warned that a full-scale trade war would hurt both sides. An analysis he made earlier indicated that China’s real GDP growth could come down by 1.4 percentage points if a 45 per cent tariff was imposed, but that retaliatory measures by China would lead to a huge loss of US output and badly disrupt Asia’s production chain.

Chen Fengying, a researcher at the China Institute of Contemporary International Relations, said the large trade deficit could be a source of tension, but that a trade war would “be a double-edged sword and could end in a draw”.

However, Chen said the Taiwan issue, rather than trade, was China’s Achilles' heel. She also said that if the Trump administration “brews a bigger storm” around that issue, it may not be limited to economic matters.

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Harrison Hu, chief Greater China economist with NatWest Markets in Singapore, said the fact Trump still had not taken action against China over trade might mean his administration was divided on its China policy. The recovery of global industry could help boost Trump’s plan for a manufacturing revival at home, and soften his policy tone, Hu said.

“President Trump’s ultimate goal is to regain jobs in the US manufacturing sector … he probably considers trade protectionist measures as a handy tool to encourage companies to shift production back onshore,” a research report by the Bank of American Merrill Lynch said .

This could lower the likelihood of a blanket US tariff on Chinese imports, it said, in favour of ones confined to a few industries like metals, chemicals and auto parts.