Trump’s “Not Sustainable” Call to Xi Could Lead to Action on Metals, Plastics — Panjiva


Trump’s “Not Sustainable” Call to Xi Could Lead to Action on Metals, Plastics

China 1793 Cons. Discr. - Apparel 218 Cons. Discr. - Durables 114 Info Tech - Comms Equip 124 Info Tech - Tech Hardware 387 Materials - Metals/Mining 496 Tariffs 1205 Trade Deals 708 U.S. 3362

President Trump and President Xi held a phone call on January 15, ostensibly to discuss the security situation on the Korean peninsula, according to a White House readout. Notably though the topic of trade came up, with President Trump stating that the growing trade deficit held by America with China is “not sustainable”. President Xi meanwhile called for a new round of comprehensive economic dialogue talks “at a proper time” in a “constructive manner”, Xinhua reports.

The Trump administration’s focus on the trade deficit as a metric for the success of its relations with other countries is well known. It is certainly correct that the trade deficit has risen. While their are definitional differences between the two countries – the U.S. measure of its goods deficit is 35.7% higher than China’s – they have both reached new records in the past 12 months, Panjiva data for U.S. imports and exports and analysis of official Chinese figures shows. On China’s definition the deficit reached $278 billion in 2017, a rise of 9.5% on a year earlier, or $372 billion on the U.S. definition for merchandise only.


Chart compares U.S. definition of its merchandise trade deficit (exports less imports) to China’s. Calculations include China General Customs Administration data. Solid line represents 12 month average.   Source: Panjiva

The challenge for President Trump, as outlined in our 2018 Outlook, is to find areas for concrete action that (a) won’t necessarily be unpicked by Congress or the WTO while also (b) not irreparably damaging relations with China. For China’s side the answer lies in boosting U.S. exports to it – the country is keen to increase its imports of a variety of goods.

President Trump’s next opportunity to act will come from the section 301 review of China’s intellectual property rights. He may be able to implement wide-ranging tariffs on Chinese goods in response. Put in simple terms a 1% reduction in the trade deficit with China requires $2.8 billion of reduced imports annually. Yet, it will be difficult to make a material difference without harming American consumers.

At the product level the largest exports from China to the U.S. are consumer goods including apparel ($48.8 billion worth of shipments out of the top 200 export lines in the past 12 months), electronics (including PCs worth $43.6 billion and mobile phones worth $43.1 billion) and furniture ($29.5 billion). Raising the cost of those via tariffs would certainly make consumers pay for not “buying American”.

Instead the President may prefer to focus on industrial materials. Base metals including steel and aluminum (which are under review already) were worth $11.8 billion and plastics equivalent to $13.1 billion. These could have tariffs applied, and American firms would likely be able to find alternative supplies and might choose to absorb higher costs through reduced profitability.


Chart segments top 200 Chinese exports to the U.S. by product category (HS-4).   Source: Panjiva

PANJIVA RESEARCH is a service provided by Panjiva, Inc. ("Panjiva") to relevant global subscribers, and are deemed to be Panjiva "Services" subject to the Panjiva Terms & Conditions of Use. Information contained within or made available via the Services is for informational purposes only and nothing in the Services shall constitute or be construed as an offering of financial instruments, or as investment advice or recommendations by Panjiva, Inc. or its affiliates of an investment strategy or whether to "buy", "sell" or "hold" an investment. The Services may include views and commentary about customers of Panjiva. No aspect of the Services is based on consideration of your individual circumstances, and you should determine on your own whether you agree with the information contained within or made available via the Services. Employees involved in Panjiva Research may hold positions in securities analyzed or discussed in the Services. Panjiva does not make any express or implied warranties, representations, endorsements or conditions with respect to the Services and the information contained within or made available via the Services, including without limitation, warranties as to the usefulness, completeness, accuracy, currentness, reliability or sufficiency of any information (including, without limitation, conclusions, statements, opinions, estimates, forecasts or projections of any kind) and expressly disclaims any implied warranties. Neither this disclaimer nor any of its contents may be forwarded or redistributed without the prior written consent of Panjiva. © 2019 Panjiva, Inc. All Rights Reserved.