“China's Ministry of Commerce put out a statement saying that President Trump had just “launched the largest trade war in economic history. It's a bold claim, but it's not backed up by the facts. The current trade war is ugly, but so far it's nowhere near the “largest in history.” That title belongs to the trade war the United States launched in the 1930s…During the Great Depression, world trade fell by 25 percent. About half of that was due to trade barriers. We haven't seen any massive reduction in world trade the way we've seen in the past.” (Heather Long, Washington Post, July 9, 2018)

The United States is engaged in a multi-front trade war with Europe, Canada, Japan, and China.

The Trump Administration initially settled to impose a tax of 25% on a list of about 800 Chinese products worth about $50 billion in sales. The tariffs against China went into effect in July. China responded with its own list of American products, targeting tariffs against about $50 billion of U.S. exports. Trump continuously hits back by asking the U.S. trade office to find up to $500 billion worth of Chinese goods to tax at the border.

Legally speaking, the American trade action is supposed to punish China for allegedly unfair technology transfer practices. In Trump’s rhetoric, however, it’s more like a comprehensive attack on America’s $300 billion (he, wrongly, says $500 billion) trade deficit with China.

Last year, the US imported $478.8 billion worth of goods and services from China, so the $50 billion target is small relative to the total universe of American trade with China. And it is tiny relative to the size of the overall American economy, which is expected to total about $20 trillion in 2018.

Looked at another way, the 25% tariff amounts to a U.S. tax increase of about $8.5 billion per year. The effective tax hike on the U.S. economy is not trivial, but tiny compared to the $150 billion per year worth of tax cuts that Congress passed in 2017.

A recent National Bank Financial report (July 16, 2018) highlighted the fact that China’s economy is currently less sensitive to U.S. trade sanctions than in the past.

China’s economy is still growing well this year (6.8% on a year-on-year basis in Q1) and is on track to hit the government’s annual growth target of 6.5%.

Furthermore, as the chart illustrates, China’s economy has been rebalancing away from its dependence of exports in the direction of increased domestic spending (consumption and capital investment).

As the chart indicates, goods exports to the U.S. account for about 19% of China’s overall merchandise exports. Nonetheless, China’s goods exports to the U.S. only account for about 3.3% of China’s GDP, its lowest dependency level in 20 years