China is the Lynchpin in Trumps Global Trade Disputes
Trade disputes are the mutual infliction of economic damage. They are often a battle of attrition, determined by the ability and willingness to outlast the other.
The biggest factor in trade disputes is economic leverage – using the size and strength of your economy to both impose and absorb economic punishment. This punishment usually comes in the form of tariffs, which are taxes imposed on imported goods from a specific nation. The goal is to influence buying behavior. Tariffs increase the cost of imported goods, forcing consumers to purchase similar goods produced either domestically or from some other nation that isn’t being tariffed.
As the world’s largest economic powerhouse, America’s economy is an imposing presence. For most nations around the world, to engage the U.S. in a trade dispute provides for dire options. Either capitulate, and negotiate more U.S.-friendly trade agreements, or face the wrath of punishing tariffs that could severely damage your economy.
President Trump has long argued that countries around the world place tariffs, quotas and trade restrictions on U.S.-made goods or engage in unfair trade practices that harm our economy. These tactics, Trump contends, have led to America’s rising trade deficit. In other words, America buys more goods from countries around the world than they buy from us.
According to the U.S. Department of Commerce, in 2024, the U.S. imported $3.296 trillion of goods yet exported just $2.073 trillion in goods. This resulted in a record-high trade deficit in goods of $1.213 trillion. This was up 14% from 2023 and up a massive 67% from 10 years earlier in 2014.
The biggest imbalance with any single nation is China. Last year, America’s trade deficit with China was $295.4 billion. For every $1 in goods China buys from the U.S., we buy $4 in goods from China. The second biggest trade deficit is with Mexico ($171.8 billion) followed by Vietnam ($123.5 billion). Canada has the ninth largest trade deficit in goods at $63.3 billion. The 27-member nation European Union (EU) has a collective trade deficit in goods of $235.6 billion.
At face value, Trump’s sprawling trade disputes seem highly ambitious. But remember, trade disputes come down to economic leverage. And Trump’s strategy is simple – foreign nations must renegotiate their trade policies or be willing to place their national economies at risk by engaging the world’s largest and strongest economic powerhouse.
Canada’s economy is about 7% the size of America’s economy. Mexico’s economy is about 6% the size. Despite the rhetoric and threats of retaliation by Canadian Prime Minister Mark Carney and Mexican President Claudia Sheinbaum Pardo, both know an extended trade dispute with the U.S. would brutalize their economies. Even the EU, whose collective economies are roughly 50% the size of America’s, is starting to show cracks in its unity. Some nations within the EU are already seeking separate negotiations with Trump to avoid the economic fallout to their country.
China, however, is a different beast. Its economy is the second largest economy in the world and is roughly 65% the size of America’s. It has the size, and potential durability, to withstand a longer trade dispute than most other countries. But China is Trump’s ultimate target in these trade disputes. To Trump, China is the worst offender of unfair trade practices.
China heavily subsidizes its steel and aluminum industries. This allows Chinese manufacturers to flood the global marketplace with cheap steel and aluminum at prices U.S. manufacturers can’t compete with. Trump has also accused China of violating international treaties by intentionally devaluing its currency, the Chinese yuan. By artificially lowering its currency relative to other global currencies, China inherently makes its goods cheaper to buy in the global marketplace and harms America’s manufacturing industry. Finally, it is estimated that China’s theft, espionage and forced technology transfers cost U.S. corporations $225-$600 billion annually, according to the Center for Strategic and International Studies.
Currently, Trump has imposed a 145% tariff on all Chinese goods imported into the U.S. China has responded with an 125% tariff on U.S.-made goods. If you listen to the news, there’s lots of commentary being made about the ongoing trade disputes with Canada, Mexico, the EU and many other nations. But for Trump, the crux of his focus has been, and will likely remain, on China.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.
