Tariff drags Chinese imports; US govt demands $200 bln cut in trade deficit

Continuing its trade offensive against China, the Trump administration has asked Beijing to further reduce export of Chinese commodities to the US. The alert came a day after statistics published by the Commerce Department showed China’s trade deficit with the US narrowed significantly. More precisely, the government is learned to have asked the Chinese authorities to slash its trade gap with the US by $200 billion by 2020.

Meanwhile, the economy got a major boost last month when trade deficit improved significantly as shipments of airplanes and soybeans grew sharply. The trade gap narrowed to $49 billion in March, the lowest in the last six months. The improvement came after trade deficit climbed to a near ten-year high in February.

The first trade report after the standoff between Washington and Beijing escalated amidst President Trump’s aggressive stance showed the trade gap with China dipped nearly 12%. However, the decline in Chinese imports is nowhere near the target set by the government while imposing tariffs on steel and aluminum imports to punish China for ‘breaching intellectual property rights.’

While a healthy trade balance would strengthen the economy, the impact of the tariffs on business confidence has started unveiling. Industries across the board are turning increasingly concerned about the long-term effects of the protectionist policies.

Elsewhere, data released by the Labor Department on Friday showed unemployment dropped to an 18-year low of 3.9% in April. Meanwhile, employees’ salaries remained broadly flat, contrary to expectations for a modest increase.

The data underscores an earlier report showing that jobless claims increased at a slower pace during the week ended April 28, and stayed close to the four-decade low registered a week earlier. The positive trend, together with the historically low jobless rate, indicates the economy is more close to ‘full employment’ than ever before.

Going forward, the steady uptrend in hiring would eventually push up wages. The consequent uptick in inflationary pressure will set the stage for the Federal Reserve to hike the policy rate at its June meeting, after keeping it unchanged in the last week’s session.