BEIJING (BLOOMBERG) - Donald Trump is threatening to stop trade with any country doing business with North Korea. Tit-for-tat actions are heating up, with the US probing China's intellectual property practices and China reviewing anti-dumping measures on some American products.
Meantime, the main irritant to Trump - China's massive trade surplus - keeps on growing.
Data due on Friday (Sept 8) is set to show the world's largest exporter's surplus grew to US$48.5 billion in August from US$46.7 billion a month earlier, a Bloomberg economist survey shows. The gap with the US has already swollen to US$143.5 billion in the first seven months of this year, from US$135 billion a year earlier, according to Bloomberg calculations based on Customs Administration data.
With White House rhetoric failing to move the trade-balance needle, the expanding surplus further dims the prospects for Trump's push to narrow that gap. It also likely adds to his frustrations as he seeks to increase pressure on China to help rein in North Korea.
"The US-China bilateral trade imbalance is mainly the result of China being the last assembly stop of the global supply chain," Gene Ma, chief China economist at the Institute of International Finance in Washington, wrote in a recent research report.
Despite rising trade tensions between the world's two biggest economies, China's export growth is projected to edge down to 6 per cent in August from 7.2 per cent the prior month. Imports probably expanded 10 per cent, compared with an 11 percent growth rate in July.
One early indicator signals the country's exports remains robust. The Caixin China Manufacturing PMI index for new export orders climbed to a seven-year high last month.
China has pledged to import more from the US, and there's been some progress: The Asian nation is buying American beef again after a 14-year ban, approving more biotech products, and increasing US natural gas imports. But making any real dent in the US deficit will take a major overhaul.
Meanwhile, relations are at risk of souring again after the US announced an investigation into China's intellectual property practices, which Beijing said is sabotaging the international trading system, and amid fresh provocations by North Korea. Trump tweeted after Pyongyang's latest nuclear test that the US is considering stopping "all trade with any country doing business with North Korea," which depends almost entirely on China.
But while the risk of some form of trade sanction has increased, such a ban would likely be seen as an empty threat by China because ending trans-Pacific trade would upend many industries, according to Julian Evans-Pritchard, a China economist at Capital Economics in Singapore.
"If any measures do follow, they are perhaps more likely to take the form of sanctions on individual Chinese firms that trade with North Korea," he wrote in a note. "That would have a limited economic impact. But it would be seen as a belligerent act nonetheless in Beijing."