The United States is running a trade deficit with China that in 2018 neared $420 billion, with the United States sending China $120 billion in goods and services and importing $539 billion in return. A good encapsulation of the debate over that trade balance is Walmart. Walmart imports a lot of low-cost goods from China, passing on those low costs to consumers. But that successful strategy has in many places also been accompanied by low wages for its employees and boxing out other local businesses.
Trade with China is cyclical, generally peaking each year in October. Because imports from China mostly increase each year, the month in which imports from China were highest was October 2018, when the United States took in more than $52 billion in goods and services.
Since that peak, imports have receded, as they often do at this part in the cycle. But the drop-off in recent months has been larger than in recent years: Between October and March, imports fell by $21 billion, the biggest drop over that same period on record.
All of which brings us to President Trump. That drop in imports is in part a function of Trump’s ongoing battle with China over a new trade deal between the two countries and a related increase in tariffs, taxes applied to imported goods on their arrival in the United States.
On Friday morning, in the midst of negotiations over that trade deal, Trump offered an analysis of the situation on Twitter. He began by excoriating the ongoing trade deficit.
As you can see above, this is incorrect. The trade deficit has never been $500 billion. If, for some reason, he’s talking about “losing” $500 billion because we import that much from China, imports from China passed that mark only in 2017 and 2018 — years when he was president.
Again, though, this formulation doesn’t make sense, by itself. Why is importing inexpensive consumer goods from China necessarily “Crazy”? Trump’s political rhetoric is focused on revitalizing manufacturing, which has led him to disparage manufacturing done in foreign countries. (Despite, we’ll note, the Trump Organization’s record of importing foreign-made products.) But to broadly disparage all imports as crazy is hard to rationalize.
He then in another series of tweets outlined his strategy for forcing China to ameliorate this perceived wrong.
“Talks with China continue in a very congenial manner — there is absolutely no need to rush — as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S.,” he wrote.
No, they don’t. As we’ve noted before, there are some customs duties that are paid directly to the government when products are imported. In 2017, the government earned about $35 billion that way. But tariffs on imports are often added to the price of the imported product, meaning that the tariffs are being paid by the people who buy the product — in this case, American consumers.
One study estimated that higher tariffs on products from China could cost American households $767 a year. The tariffs also hurt American businesses by making them either charge more or absorb more of the cost of imported products, both of which threaten profitability.
“The process has begun to place additional Tariffs at 25% on the remaining 325 Billion Dollars,” Trump continued. “The U.S. only sells China approximately 100 Billion Dollars of goods & products, a very big imbalance.”
Here his numbers are about right: $250 billion of imports for which tariffs apply, plus $325 billion for which they don’t now is about $575 billion — a bit more than the $540 billion imported in 2018 but not terribly so.
But then things get goofy again.
“With the over 100 Billion Dollars in Tariffs that we take in,” he wrote, “we will buy agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance. ... Our Farmers will do better, faster, and starving nations can now be helped. ... If we bought 15 Billion Dollars of Agriculture from our Farmers, far more than China buys now, we would have more than 85 Billion Dollars left over for new Infrastructure, Healthcare, or anything else.”
A 25 percent tariff on $575 billion would yield about $144 billion, for what it’s worth. But again: This is not money being paid by China. Some of the tariff fees will be paid by the Chinese manufacturers in an effort to keep costs down, sure. Some will be paid by businesses. But much will be paid by consumers. It’s that $767 tax — a $62.5 billion tax increase nationally.
Trump’s worried about farmers because much of what the United States exports to China is agricultural. China’s retaliatory tariff on soybeans dramatically reduced exports to that country, the world’s largest consumer of the crop. Farmers, of course, often live in rural red states that are key to Trump’s base of political support. The government has already moved to bolster farmers with financial support to offset the damage done by the trade war.
What Trump’s claiming here, though, is that he’ll take money paid by China in the form of tariffs to buy the farmers’ goods and ship them to other countries — leaving lots of money left over for other funding needs. But we can translate his argument in a less flattering way: Trump is taxing American consumers and using some of that money to buy agricultural products to protect part of his political base from his trade war.
How this all gets resolved is yet to be determined. But it brings to mind another Trump tweet from more than a year ago.
If trade wars are easy to win, we’d be well advised to hurry up and win this one.