During his Monday morning interview with CNBC, President Donald Trump claimed that China has “lost 15 to 20 trillion dollars in value since the day I was elected.”
Facts First: This isn’t even close to true; nor is it clear what Trump is actually referencing here. The entire size of the Chinese economy is estimated to be around $13 trillion, so it’s impossible for it to lose more than it is worth. On top of that, China’s economy has continued to expand during Trump’s time in office.
China’s GDP growth has remained above 6% since Trump was elected in November 2016. While Chinese economic growth has started to slow, that trend was already underway before Trump was elected.
In 2017, China’s GDP was $12.238 trillion, according to the World Bank. While current estimates are hard to come by, China’s economy grew by 6.6% in 2018, which would put the size of the economy just over $13 trillion.
If China were to lose $15 to $20 trillion it would completely wipe the country off the face of the world’s economic map.
The bigger point Trump seems to be making here is that his trade policies are hurting China’s economy. That at least does carry a kernel of truth. (As economists have noted, however, the US economy is harmed by these tariffs as well.)
Since his first round of tariffs against China went into effect last summer, US imports from China have dropped sharply, as companies have begun to switch their sourcing to other East Asian countries like Vietnam. In the first 4 months of 2019, Americans imported about 12% less from China compared to the same period last year.
According to the research firm Capital Economics, the 25% tariff on all Chinese goods that Trump is set to impose could shave 0.8 percentage points off China’s GDP. Just under half of that GDP decrease, Capital Economics estimates, should have already happened due to lower tariffs on intermediate goods such as steel.
Over the course of a year, this estimated 0.8% hit could account for roughly $100 billion dollars – nowhere near Trump’s $15 to $20 trillion figure.
Trump hinted at potential action against France over the price of wine during his phone interview with CNBC.
“You know, France charges us a lot for the wine. And yet we charge them very little for (American) wine. So the wineries come to me and say, ‘Sir,’ the California guys they come, ‘Sir, we’re paying a lot of money to put our product into France and you’re letting, meaning this country, is allowing this French wine – which are some great wines, but we have great wines too – allowing it to come in for nothing. It’s not fair,’” Trump said.
“And you know what? It’s not fair. We’ll do something about it,” he continued.
Facts First: This isn’t quite true. While US tariffs on wine from the European Union are smaller than the EU’s tariff on American wine, according to the Wine Institute, contrary to what Trump said, the US does not allow French wine “to come in for nothing.”
The EU’s import tariff on wine for a 750 ml bottle “can range from $0.11 to 0.29, depending on the type alcoholic content of the wine,” the Institute states. By comparison, “the US import tariff on a 750 ml bottle is $0.05 for still wine and $0.14 for sparkling wine.”
And while the US and EU maintain a 2006 agreement on wine trade, the institute argues that the EU has since “created certain restrictions that increase costs or otherwise affect the ability of US wine to compete in the EU.”
One main restriction comes in the form of a certification for wine imports from the US. The US doesn’t have similar certification for French wine imports.
Another restriction that makes it more difficult for American wine producers to sell in Europe is a limit on the use of common wine descriptors, including “chateau,” “clos,” “tawny,” and “ruby” for their products.
What Trump will actually do about the price of wine is unclear, but the President threatened tariffs on France’s wines – part of a larger tariff threat against the European Union – late last year.
“France makes excellent wine, but so does the U.S. The problem is that France makes it very hard for the U.S. to sell its wines into France, and charges big Tariffs, whereas the U.S. makes it easy for French wines, and charges very small Tariffs. Not fair, must change!” Trump tweeted last November.
European wine and cheese were also among the goods the US Trade Representative’s office threatened to place tariffs on in April.
China’s currency manipulation
Trump contradicted his own Treasury Department by calling China a currency manipulator weeks after the agency skipped slapping that label on the Asian giant. “They devalue their currency. They have for years. It’s put them at a tremendous competitive advantage,” the President said during his interview on CNBC before proceeding to attack the Federal Reserve for not lowering interest rates in the US.
Facts First: China’s currency has fallen 9% against the US dollar over the past year, according to one economic research firm, but its recent depreciation didn’t trigger the US government taking the rare step of formally labeling Beijing a currency manipulator last month.
Speaking to CNBC, Trump said the sharp decline in China’s currency “absolutely” needs to be addressed as the yuan has depreciated to help offset tariffs on billions of dollars of Chinese goods amid an ongoing trade war between the two major economic superpowers.
Economists appear to agree that the weaker currency – whether by design or not – has softened the blow of tariffs on China by making its goods cheaper. But it also raises the risk that the trade dispute could spiral into a currency war.
A research note by Capital Economics released Monday points out that the weaker currency has “provided a cushion since the first tariffs came in,” adding that the yuan is “9% weaker against the dollar and 6% in trade-weighted terms since this time last year.”
“A further leg down is likely if China’s leaders conclude that there is little point in holding out for a deal,” according to the report. “If President Trump goes ahead with the threatened 25% tariff on the remainder of China’s goods, we believe that the renminbi would be allowed to weaken.”
On Sunday, People’s Bank of China Governor Yi Gang acknowledged the weakness in his country’s currency in an exclusive interview with Bloomberg News, suggesting that it was indeed a result of the trade war with the US.
“There is obviously a link between the trade war and the movements of renminbi,” Yi said in the interview in Beijing. “Recently, it’s a little bit weaker, because of the tremendous pressure from the US side.”
In late May, the Treasury Department declined once again to label China a currency manipulator, despite Trump’s pledge to do so during his 2016 campaign. Instead, the country was placed on Treasury’s “monitoring list” in its review of US trading partners along with eight other countries.
To be fair, Treasury’s report highlighted “significant concerns” over the meaningful depreciation of China’s currency against the US dollar, a critical component of ongoing trade talks, and urged China to take steps to avoid “a persistently weak currency.”
“Treasury will continue its enhanced bilateral engagement with China regarding exchange rate issues, given that the RMB has fallen against the dollar by eight percent over the last year in the context of an extremely large and widening bilateral trade surplus,” said Treasury Secretary Steven Mnuchin in a statement in May.
Still, the Treasury Department said that while China doesn’t disclose its foreign exchange interventions, it estimates that direct intervention by the People’s Bank of China in the last year has been “limited.”
Mnuchin met with China’s central bank governor, Yi, over the weekend on the sidelines of the G20 economic summit in Fukuoka, Japan. In a tweet, Mnuchin described the meeting as “constructive” with a “candid discussion on trade issues.” It’s unclear if the two men discussed currency issues.
At another point in his CNBC interview, Trump said that the US “got everything we wanted” out of negotiations with Mexico last week.
The President threatened to slap tariffs on Mexico if the country didn’t step up immigration enforcement and prevent more migrants from crossing into the US from the southern border illegally. High-level negotiations between the US and Mexico ensued in Washington last week, and the two countries signed onto a joint declaration agreeing to several immigration enforcement provisions, ceasing the pursuit of tariffs Friday night.
“We got everything we wanted and we’re going to be a great partner to Mexico now, because now they respect us. They didn’t even respect us,” Trump told CNBC.
Facts First: Trump’s claim that the US “got everything we wanted” in negotiations misconstrues what we know about the bilateral negotiations. One key element of negotiations is about so called “safe state status” and Trump’s statements were misleading on the scope and timeline of that provision.
Trump also touted that the US is “going to be essentially using to a large extent, the very powerful immigration laws of Mexico, and Mexico wants to do a good job. They’re moving 6,000 soldiers to their southern border.”
“Do you think they agreed to do that before?” he added.
But despite Trump’s suggestion that the provisions are new, the New York Times reported that the US and Mexico had agreed months earlier to some of the border policies described in last week’s joint declaration.
The Mexican government had pledged to deploy the National Guard nationwide with a focus on its southern border – a key part of Friday’s agreement – during secret meetings in March between former Homeland Security Secretary Kirstjen Nielsen and Mexican interior secretary Olga Sanchez in Miami, US and Mexican officials familiar with the negotiations told the Times.
The deal’s key expansion of a program that would keep asylum seekers in Mexico while their claims are processed was established in two heavily brokered diplomatic notes exchanged between the two countries, the Times reported. Nielsen announced the Migrant Protection Protocols during a House Judiciary Committee hearing in late December.
Trump disputed the Times’ story in a series of tweets Sunday morning, writing that his administration, like others before it, had been working toward some aspects of the deal “for a long time,” but said they “were not able to get them, or get them in full, until our signed agreement with Mexico.”
Companies leaving China?
During the interview, Trump suggested that Beijing will agree to a deal because the tariffs he’s imposed on Chinese goods are driving away business.
“China deal’s going to work out, you know why? Because of tariffs. Because right now China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own,” he said.
Facts First: This is a bit of an overstatement. There is evidence that US importers are shifting part of their production outside China since Trump imposed tariffs, but little shows that there’s a mass exodus of companies that are relocating entirely away from China – a process that would likely take years.
There are currently tariffs on $250 billion of Chinese goods, giving US importers an incentive to find suppliers outside of China to avoid paying the tariff.
Trade data published by the US Census Bureau last week suggests that they are buying more from other Asian countries, while importing about 12% less from China this year.
US imports are up 38% from Vietnam, 22% from Taiwan, 17% from South Korea, and 13% from Bangladesh, during the first four months of 2019 compared to last year.
While those are significant increases, some production was already moving outside of China – to places with even lower wages – long before Trump began imposing tariffs. US imports from countries like Vietnam and South Korea have been steadily increasing over the past decade as those countries ramped up manufacturing of apparel and electronics, respectively. Plus, the United States imports more overall when the economy is strong.
Still, it’s unclear whether companies are genuinely shifting production outside of China, or simply rerouting goods for minimal processing before being shipped to the US. The uptick in imports from Vietnam and Taiwan suggests that at least partially explains what is happening, according to a report from Capital Economics, a research consulting firm based in London.
Plus, it’s not always easy to find a supplier outside of China that can manufacture the same good, with the same quality, and for a cheaper price. Instead, an importer may decide to eat the cost, betting that Trump will lift the tariffs sooner rather than later. They can also choose to pass the cost on to consumers for the time being.
About 60% of companies surveyed last month by the American Chamber of Commerce (AmCham) and its counterpart in Shanghai said they have no plans to relocate manufacturing outside of China because of the tariffs.
Who pays the tariffs?
The President claimed there has been no price increase on products subject to the tariffs he imposed on Chinese goods.
“You haven’t seen any or virtually any price increase,” said Trump, “because what China does, it’s basically their companies, they subsidize their companies because they want to keep people working, they want to stay competitive.”
Facts First: If only it were so simple. While inflation has remained relatively low in the US, new research suggests that prices on products subject to tariffs have risen significantly.
Economists at Goldman Sachs found that prices on categories of goods subject to tariffs imposed last year – the bulk of which fell on Chinese imports – have risen sharply compared with categories without new tariffs. Put another way, Goldman estimates that 40% of the cost of tariffs has been passed on to consumers, with the rest split between producers and retailers. (So far, these tariffs have almost doubled customs revenue, bringing billions of tax dollars into the Treasury.)
Prices have risen the most for goods subject to tariffs regardless of what country they came from, because it’s not possible to avoid the duties by buying from somewhere else. On washing machines, for example, studies show that consumers absorbed more than the cost of the initial tariffs, since the prices of complementary goods – clothes dryers, in this case – went up as well.
According to a paper from economists at Princeton, Columbia and the New York Federal Reserve, US companies and consumers were paying $3 billion a month more on account of the tariffs by the end of 2018.
In the administration’s own economic report it admits that consumers will pay a higher price for products in the wake of these tariffs. “Offsetting these benefits are the costs paid by consumers in the form of higher prices and reduced consumption,” the Economic Report of the President published in March states.
This story has been updated.