The U.S. trade deficit with China is on track to fall to its lowest in a decade. This looks, at first glance, like a decoupling of the two economies thanks to the steep tariffs President Donald Trump slapped on Chinese imports in 2018.
Trump is spoiling to finish the job, floating a 60%, or higher, tariff on all Chinese imports if he’s re-elected this fall.
The U.S., though, hasn’t kicked the Chinese import habit as much as the data suggest. Chinese and Western manufacturers have found numerous ways around tariffs; they are likely to redouble those efforts if the levies go higher.Last year, the overall U.S. trade deficit shrank to $1.1 trillion from $1.2 trillion in 2022, according to preliminary data from the Commerce Department.
As a share of gross domestic product, it fell to 4%, the lowest in a decade.
Setser predicts that China, to make up for lost exports to the U.S., would drive down its currency to boost exports to countries that haven’t raised tariffs—expanding Chinese companies’ presence in those economies.
Of course, the U.S. could try to keep those imports out by hitting other trading partners with tariffs. Trump has proposed a 10% levy on all imports, not just from China.
This, though, is a recipe for the decoupling of the U.S. not just from China, but the whole world.
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