15 Jan The Tell: Record China-U.S. trade surplus is ‘fanning the flames’ for a trade war, says Danske analyst
China on Friday posted a record high trade surplus with the U.S. and it couldn’t have come at a more sensitive time of trading relations between the world’s two biggest economies.
According to the report from the General Administration of Customs, the China-U.S. trade gap jumped by 10% to an all-time high of $275.8 billion last year, accounting for about 65% of the country’s total trade surplus and 2% of total Chinese gross domestic product.
“The new record trade deficit between the U.S. and China is fanning the flames for a trade war, said Allan von Mehren, chief analyst at Danske Bank, in a note to clients.
“The report comes at a time when tensions between the U.S. and China already are escalating and Donald Trump has kicked off various investigations, which could lead to protectionist measures within the next 3-6 months,” he said.
U.S. President Donald Trump has repeatedly vowed to put and end to “trade abuses,” singling out China’s global trade dominance as unfair, one-sided and something that possible must be stopped with tariffs. With the Republicans’ tax reform now out of the way, the president is expected in coming weeks to return to a focus on trade—another of his key campaign pledges—by launching a massive crackdown.
Among concerns for investors are Trump pulling the U.S. out of the North American Free Trade Agreement and the administration slapping trade tariffs on China that some fear could spark a trade conflict. The Nafta woes further escalated this week after reports that Canada—one of the biggest players in that trade deal—expects Trump to shortly pull the U.S. from the accord. The Trump administration has said that nothing has changed about the progress of its Nafta talks, which will take place later this month in Montreal.
Tensions between the U.S. and China also resurfaced earlier this week after a Bloomberg report, that Beijing would slow or halt purchases of U.S. Treasurys. The report has since been denied by a state regulator, but analysts believe it could be a warning sign to the U.S. administration.
“Maybe a little warning to Trump that China has the instruments to hit back if the U.S. introduces protectionism measures against China,” von Mehren said.
“Neither the U.S., nor China, have an interest in a trade conflict, and they should try to solve the tensions through bilateral negotiations. But at the moment it unfortunately looks like the risk of a trade clash is rising,” he added.