CHINA COMMENTS ON THE SOUTH LAWN       

    

"We're having a little squabble with China ... ."  

May 14, 2019

PRESIDENT TRUMP

We're having a little squabble with China because we've been treated very unfairly for many, many decades - for, actually, a long time.  And it should have been handled a long time ago, and it wasn't.  And we'll handle it now.

I think it's going to be - I think it's going to turn out extremely well.  We're at a very strong position.  We are the piggy bank that everybody likes to take advantage of, or take from.  And we can't let that happen anymore.

We've been losing, for many years, anywhere from $300 billion to $500 billion a year with China and trade with China.  We can't let that happen.

The relationship I have with President Xi is extraordinary.  It's, really, very good.  But he's for China and I'm for the USA, and it's very simple.

We are, again, in a very, very strong position.  They want to make a deal.  It could absolutely happen.  But, in the meantime, a lot of money is being made by the United States, and a lot of strength is being shown.  This has never happened to China before.

We will keep this very short.  No one can say with confidence where all of this is headed, but we are pretty sure the President's comments above are familiar to you.  So too, of course, is the fact that the U.S. has now upped the tariffs on those products that had been subject to 10 percent duties under Section 301.  In the weeks ahead, all of the covered items from China will be hit with 25 percent tariffs when they arrive in U.S. ports. 

The Chinese have responded with their own tariffs, and the U.S. has set in motion the legal processes for increasing tariffs on almost all the other imports from China that are not already caught up in the 301 case.  For the record and, we expect, to no one's surprise, the tariff battles of this past year seem to be reflected in the trade data.

 
Imports of goods from China for the first quart of this year are down 14 percent from last year ($105.9 billion for January through March 2019 versus $123.1 billion for the same period in 2018).

U.S. exports to China for the first quarter are down roughly 19 percent from last year ($26 billion for January through March 2019 versus $32 billion for the same period in 2018.)

And the U.S. bilateral trade deficit for the first quarter of this year is down about 12 percent from last year ($80 billion, down from $91 billion).

This entry, however, owes its existence not to the data but to the phrase "a little squabble."  It is at once encouraging and misleading, though we don't fault it on either count.  It is encouraging because it strongly suggests that, like a flare up in a marriage, it will pass, and we are hopeful that it will.  The U.S.-China relationship may not be the happiest of marriages but with luck it will last for quite a bit longer.  And the fact that President Trump is encouraging the world and his counterpart, President Xi, to see it in that light is encouraging.

But a squabble, like a squall, is something that passes quickly without really changing the underlying status quo.  In that sense, this dispute between the United States and China is not a squabble, it is a shift in the tectonic plates of commerce.  Trade may go on much as before when it is over, but the ground will have shifted.  The agreement that ends the quarrel will be hailed as definitive, but all concerned will understand that the geologic process will continue and that in another five years or so the ground will shift again.