Trade War First Shot Officially Fired

 And sure enough, during the signing ceremony, Trump said he is directing USTR to examine China’s actions on theft of American intellectual property. He said the U.S. will enforce the rules of fair and reciprocal trade.

As reported earlier, China is not happy and in an editorial published in the China Daily, the government lashed out at Trump, warning him that by “politicizing” trade, he risks “exacerbating” the US’s “economic woes,” and “poisoning” the relationship between the world’s two largest economies. China also said that the crackdown on trade was seen as an attempt to distract attention away from Trump’s domestic problems. “Bashing China cannot solve U.S. economic problems, experts say,” the state-run Xinhua news agency proclaimed. The nationalist Global Times newspaper even tried to link developments to violence and “racial hatred” that broke out in Charlottesville at the weekend.

Finally, as observed over the weekend in our take of who stands to lose – and win – if the U.S. takes aim at the unbalanced trade relationship with China, the answer is far-reaching. With total bilateral trade of more than half a trillion dollars a year, the list of potential losers is very long as Bloomberg analyzed recently. The most notable examples include:

• U.S. companies such as Apple Inc., which assemble their products in China for sale in the U.S., and those tapping demand in China’s expanding consumer market.
• U.S. agricultural and transport-equipment firms, which meet China’s demand for soy beans and aircraft.
• Manufacturing firms from the U.S. that import intermediate products from China as an input into their production process.
• Retailers including Wal-Mart Stores Inc. and the U.S. consumers that benefit from low-price imported consumer electronics, clothes and furniture.
• Other trade partners caught in the crossfire of poorly-targeted tariffs. On steel, for example, U.S. direct imports from China account for less than 3% of the total — below Vietnam.

And while conventional wisdom is that the US has a chronic trade deficit with China – it does – the U.S. also runs a nearly $17 billion trade surplus with China for agricultural products. China consumes about half of U.S. soybean exports, America’s second largest planted field crop. Soybean farms are mostly located in the the upper Midwest (Illinois, Iowa, Indiana, Minnesota and Nebraska). The volumes are so significant that a spike in soybean exports was a noticeable contributor to GDP growth in the second half of last year as readers may recall. China is also a major buyer of U.S. aircraft, perhaps the only areas of manufacturing where the U.S. retains a competitive edge (though not for much longer). The U.S. also has an $8 billion dollar trade surplus with China in the transportation equipment category.