US President Donald Trump announced new tariffs on Chinese products last month. Some of the tariffs have come into effect this month while others will come into play as the year progresses. If Trump’s tariff plan stays on track, almost all Chinese products will have a US tariff before the end of 2019.
US companies like Apple (AAPL) and Amazon (AMZN) have tried to convince the Trump administration that the tariffs are also hurting them. Meanwhile, Trump’s tariffs are taking a larger toll on the Chinese economy. The US-China trade war and global slowdown are taking a toll on the Chinese economy. However, China dismissed that the trade war is hurting its economy. Begrudgingly, the country has admitted to the fact at different forums. China’s August trade data showed a contraction in both exports and imports.
China imports weak after Trump’s tariffs
China released its August trade data today, September 8. The country’s dollar-denominated exports fell 1.0% while its imports contracted 5.6% year-over-year (or YoY) last month. China’s August exports fell short of analyst’s expectations. Analysts polled by Reuters expect China’s August exports to rise 2.0%. However, China’s August imports shrunk slightly less than feared.
Nonetheless, Chinese imports have been particularly weak this year. Chinese imports have decreased YoY every month this year barring April. Weak imports show a sagging domestic economy. Most analysts agree that Trump’s tariffs are causing China’s economic woes. China’s second-quarter GDP grew at the slowest pace in 27 years.
Analysis of China’s August trade data
China’s August trade data show weakness from the previous month. In July, China’s exports rose 3.3% YoY while imports fell 5.6%. China’s August trade surplus shrunk to $34.84 billion from $45.06 billion in July. The country’s August trade surplus was lower than expected. Meanwhile, despite Trump’s tariffs, China continues to have a sizable surplus with the United States. According to Reuters, in August, China said it had a trade surplus of $26.95 billion with the United States.
While Trump’s tariffs have forced some US companies to rethink their China sourcing strategy, we haven’t seen many US companies leave China. Reportedly, companies like Apple, Amazon, Alphabet (GOOG), and Microsoft (MSFT) are planning to shift some of their supply lines from China.
Trump’s tariffs and China’s slowdown
Most economic indicators show China’s growing slowdown. Hurt by Trump’s tariffs, China’s economic growth has slowed down. China has taken several steps to arrest the slowdown. Just last week alone, the country lowered its reserve ratio for banks. Also, in the United States, Trump has been flattering the Fed for more rate cuts. The US Fed did lower rates by 25 basis points in July. Back then, Fed chair Jerome Powell believes the trade war is one of the reasons for cutting rates.
Meanwhile, in-person US-China trade talks are scheduled to begin in the next month. However, it’s not certain if Trump will hold back the tariffs set to take effect next month. Financial analyst Larry Kudlow said last week that the US-China trade tensions could last for years. Last year, Alibaba’s (BABA) co-founder Jack Ma also echoed similar views.