Trump's $505B China Tariff Threat, Explained

President Donald Trump said in a CNBC interview Friday morning that he is willing to ramp up his trade war with China as far as it can go. Trump threatened to impose tariffs on all Chinese imports — goods worth roughly $505 billion in 2017.

What He Said

When asked about the trade war, Trump said he has no ill will toward China and likes Chinese President Xi Jinping, but said he will continue to stand up for what he sees as an unfair trade balance.

“I'm not doing this for politics, I'm doing this to do the right thing for our country," Trump said. "We have been ripped off by China for a long time.”

Trump said he is “ready to go to 500” with tariffs on Chinese goods, referencing the $505-billion figure.

Why It’s Important

Trump has made a number of threats, but up to this point he has imposed tariffs on just $34 billion of Chinese goods. China has retaliated with its own tariffs on $34 billion of U.S. goods, but China can’t keep pace with the U.S. if Trump continues to push the envelope. The U.S. exported only $129.9 billion of goods to China last year.

What’s Next

Investors will be watching closely to see whether Trump is serious about a $505-billion tariff or if he is bluffing in an attempt to make China blink. Height Capital Markets analyst Clayton Allen said Friday there’s a strong possibility the tariffs won't be enacted.

“Our thesis remains that Trump is using tariffs as a threat to force Chinese concessions in a variety of areas, in line with Trump's comments that trade wars are ‘good and easy to win,’” Allen said. “We also expect that a key portion of Trump's strategy is to ramp up pressure on the Chinese as rapidly as possible so as to force concessions before the negative impacts of a trade war damage his political standing at home.”

The U.S. stock market initially reacted negatively to Trump’s remarks. The SPDR S&P 500 ETF Trust SPY was down by 0.2 percent in Friday’s premarket session.

Following the interview, Trump also lashed out at the Federal Reserve's interest rate hikes on Twitter Friday morning, sending the U.S. dollar tumbling.

China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day - taking away our big competitive edge. As usual, not a level playing field...

— Donald J. Trump (@realDonaldTrump) July 20, 2018

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