President Donald Trump’s efforts to change the dynamics of trade with China have so far focused on protecting U.S. heavy industry, technology and intellectual property. He’s proposed tariffs on $100 billion worth of imports. China responded with its own measures to tax imports, mainly U.S. agricultural products.
Growing deficit: The U.S. trade deficit with China was about $375 billion at the end of 2017, and has been growing at an average 4% per year. Such a gap should be expected between the world’s largest producer and its largest consumer.
High volume: One-fifth of all Chinese exports go to the U.S., with a similar percentage of U.S. imports coming from China. While China has regional partnerships, the U.S. has stronger ties with neighbors that could absorb demand for U.S. goods.
Standoff? China holds $1.2 trillion in U.S. Treasuries. Selling a portion of that could devalue the Treasury market and the dollar and drive up rates. However, doing so would also devalue its own portfolio and its foreign reserve holdings.
A lot to lose: So far China is targeting U.S. agricultural imports. China imports about 14% of what the U.S. exports. Less demand would drive up supply, a blow to producers as profits are already tight.