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Datawatch

China tariffs backfire on Trump -- and threaten global growth

Japanese and other Asian economies hurt by slowing Chinese exports to US

U.S. President Donald Trump has openly declared: "I like tariffs."  

WASHINGTON/TOKYO -- Despite U.S. President Donald Trump's tough stance on Beijing, his tariff hikes have not narrowed America's trade deficit with other countries or increased employment in the manufacturing industry, analysts said.

While Washington is imposing the fourth round of tariffs on Chinese imports, the cumulative trade deficit of the U.S. since Trump took office in January 2017 has exceeded $2 trillion, rising by 8% in 2017 and 10% in 2018.

Although the U.S. has managed to cut its trade deficit with China, a fall in exports has led to a rise in the gap with other countries.

The U.S. logged a trade deficit of $412.1 billion in the first half of 2019, up 3% from a year earlier, according to the U.S. International Trade Commission. America's trade deficit with China decreased by $18.8 billion from the January-June period of 2018 before Washington brought on the first round of tariffs. But its trade deficit with Mexico and Vietnam increased by a total of $20 billion.

Multinational companies have started procuring for their supply chains from Mexico and other countries. Yet, demand for imported goods is inherently strong in the U.S. Even with tariffs raised to shut out Chinese imports, American consumers still buy products from other countries.

Furthermore, the global supply chain is so intricately intertwined that U.S. tariffs have had a boomerang effect on some of its own products. Goods that enter the U.S. from China include materials, intellectual properties and other items that originate from other countries including the U.S. As such, if exports to the U.S. by Chinese companies decrease, exports by American companies to provide materials and intellectual properties to those Chinese entities also fall.

According to the Organisation for Economic Co-operation and Development, the U.S. provides $9.57 billion worth of content to Chinese companies that export to the U.S. in 2015, the latest data available.

OECD data showed that China's exports to the U.S. amounted to $489.1 billion in nominal terms in 2015, with the value-added content that China generated coming to slightly more than 80% of the total. This suggests that other big electronics manufacturers such as Japan, South Korea and the U.S. itself export parts to China which in turn send them to America.

U.S. exports to China and other markets contracted 20% and 1.9%, respectively, in the April-June period. The U.S., therefore, logged a year-on-year fall in exports on a quarterly basis for the first time since 2017.

Exports of soybeans and other agricultural products and even highly competitive industrial products, such as medical equipment, stagnated.

Without a fall in imports while exports remain weak, the preliminary Purchasing Managers' Index for U.S. manufacturers fell to 49.9 in August, marking a contraction of the economy, according to research company IHS Markit.

Employment growth in the U.S. manufacturing industry has also slowed since January.

Analysts pointed to an increasing risk of a vicious cycle in which Trump sticks to his tariff policy, causing greater downward pressure on the world economy as a result of his failure to reduce the U.S. trade deficit.

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