The Perils Of The Covid-19 Trade War

The perils of the Covid-19 trade war are increasing. Imports from China have fallen off a cliff. Imports are approaching Great Recession levels as the American consumer has really pulled back. It has been reported that the Fed has said 40 percent of those earning less than $40,000 per year are laid off in America. That is a horrible number, and due to safety concerns, some may wait a long time to get jobs back if at all. 

U.S. Bureau of Economic Analysis and U.S. Census Bureau, U.S. Imports of Goods by Customs Basis from China [IMPCH], retrieved from FRED, Federal Reserve Bank of St. Louis;, May 12, 2020.

Exports to China have fallen some as well as we see from the second chart. But falling not to the extent of imports from China. The chart below shows that China's purchases from America, despite the abuses that Trump has heaped on that nation, are still holding up somewhat.

U.S. Bureau of Economic Analysis and U.S. Census Bureau, U.S. Exports of Goods by F.A.S. Basis to Mainland China [EXPCH], retrieved from FRED, Federal Reserve Bank of St. Louis;, May 12, 2020.

Exports to China are even showing a slight rebound and are not nearly as meager as they were in the Great Recession. These two charts above appear favorable to the USA. They appear to be an improvement from before as to the balance of trade. So why is POTUS threatening more tariffs and still larger trade war?

Both nations are talking about scrapping Phase 1. But the trade deficit appears to be more favorable to the USA now than before the virus:

2020: U.S. trade in goods with China

NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding. Table reflects only those months for which there was trade.





January 2020




February 2020




March 2020




TOTAL 2020




Banking on China

There has been a lot of talk about moving supply chains and whole factories to the west, out of China, due to the Covid-19. Yet it appears from Japanese firms as an example, that the upside of staying close to 1.3 billion customers overshadows reasons to secure supply chains in the home nation.

“Companies do not want to talk about sensitive matters like this because it could, theoretically, invite retaliation from China,” said Jun Okumura, an analyst at the Meiji Institute for Global Affairs.“But, at the same time, China is still a market of 1.3 billion people, it will have one of the world’s fastest growing economies when the world emerges from the coronavirus crisis and Japanese firms will not want to do anything that jeopardises their standing in that market.”

These firms have manufacturing in Southeast Asia too but will not leave the growth horse that China is. American firms would do well to take heed. Most US firms have no plans to leave China either. However, decoupling does make for greater concern. The great decoupler is Donald Trump:

Most U.S. firms in China currently have no plans to relocate production to other parts of the country or abroad due to the coronavirus, but there is less certainty about the long term due to growing worries over U.S.-China decoupling, a survey showed...

...Noting how the top concerns for companies had shifted over the course of those two surveys, from the U.S.-China trade war to the coronavirus, the chambers said over half of their March respondents said it was too soon to tell whether their China supply chain strategy for the next three to five years would change.The proportion of respondents who said they thought it would be impossible for the two economies to decouple fell to 44% in the latest survey, from 66% in October.

Blaming China for Covid-19 when Donald Trump fiddled through the entire month of February is a dubious strategy to win reelection. Certainly, it appears that China has a hand in a lack of warning of the damage the virus could do. People were speaking about the virus not being able to spread from person to person. That idea didn't work out well.

But making China the enemy as Mike Pompeo wants to do has no real economic benefit, and it is pure politics. Australia and Germany, as well as most scientists, believe that the Covid-19 was not created in the Wuhan Lab and that it was likely spread through hunting bats in bat caves in China. So for Pompeo to speak with certainty that the virus came from the Wuhan lab is actually close to a lie. He just doesn't have the proof necessary to make the claim. But he has made it over and over.

Covid-19 Trade War

That Donald Trump would allow Pompeo to spread an unconfirmed and highly disputed report throughout the world is troubling. Yes, China should have explained the virus to the west. But it likely was not created in the lab and this should be the narrative. The Chinese are quite angry with Pompeo. But Pompeo is in Israel trying to pry Israeli/Chinese cooperation apart.

The Trump administration has decided to order the US Thrift Savings Plan to avoid investing in Chinese holdings. It appears that the TSP Board folded and delayed action on the international investment into Australia and Asia.

This preoccupation with antagonizing China makes absolutely no economic sense. But so much of what Trump does makes no sense. It is good politics to shower his miserable followers with hatred of China. They have to have somebody to hate, after all. It may as well be China. But those who invest in this Thrift Savings Plan may want to switch out for better returns.

Nations should continue to engage, and trade, as it opens them up to other products and ideas. It gives people favorable feelings towards other nations. China is perhaps failing as a model citizen nation, but Trump isn't helping. He is making it much worse at a time in which both nations need each other.

The American consumer has packed it in. JPMorgan reports credit card customers have cut spending by 40 percent. For how long this will continue, we just don't know. But savings and frugality are making a comeback. That deflationary pressure may mean that Trump should be grateful for any Chinese scraps coming our way in the foreseeable future. But Trump sees the virus as a threat to his presidency. And for that reason, he will act irrationally and should be reined in before he does some serious damage to the world economy.

Not only are things going bad with China, but things are going bad with a bilateral trade deal between the US and the UK. In my opinion, the UK is too diverse to give up its sovereignty as Mexico and Canada were forced to do. They have to get permission from the USA when entering a trade deal with China. The UK does not need that noise, yet POTUS seeks the same deal with Boris Johnson. Trump is doing great damage to our most loyal allies. 

When will it end? I see it getting worse. Trump wants control over UK sovereignty, make no mistake about it. Brexit people who were hoping for a free trade world are going to be very disappointed: 

However, with the commencement of UK-U.S. talks, a specific demand was cited in a BBC report, which largely went unnoticed by the public. The Donald Trump administration is demanding that London submit to what is known as a "poison pill" clause that gives the United States an exclusive right to void any agreement made with Britain should the UK sign another agreement with what America considers to be a "non-market economy."
It's not hard to see which country that clause is aimed at with Washington having already forced this principle into a renegotiation of the North American Free Trade Agreement last year, thus gaining a right of veto over China-Canada and China-Mexico deals.
The move is an unacceptable attempt to infringe on Britain's national sovereignty and, ironically, contradicts the very trading principles those supporting Brexit have aspired to.

The insanity is happening because the congress of the United States is too afraid to stop Trump from offending every ally we have. The UK's national interest as a sovereign nation is at stake. That Trump would even seek to pry Brits from their national sovereignty is appalling. I have written before that bilateral trade deals are in the tradition of Adolph Hitler, and interfering with the sovereignty of nations is just over the top bad policy. 


The radical right that controls our government is willing to divorce China, and Trump seems to be trying to cash in politically on that line of reasoning. He is also willing to hurt our sovereign ally, the UK, by asking for a piece of that nation's sovereignty. Does the president of the United States have no shame? Of course, he doesn't. And that means danger going forward unless the American people wake up to this disturbing behavior. The media isn't doing its job and hasn't since POTUS45 became president. The man is a socialist trade demagogue, and racist and a narcissistic president, who retweeted awhile back that he was the second coming to Israel. He has absolutely no self boundaries, and America should take note.  

Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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Rebecca Duncan 2 years ago Member's comment

Any updates on this?

Gary Anderson 2 years ago Author's comment

Trade does not look good right now. The American people have been brainwashed to hate China. Jeffrey Sachs said recently that this is a dreadful mistake. I may be able to put something together down the road. Thanks for asking.