Chinese exports to the US rose strongly after it joined the World Trade Organisation in late 2001 but have been falling since 2006 and are now less than 4% of GDP. In terms of value added, the share is even lower as these data include imported components. Following the Trump tariffs, Chinese exports to the US are set to fall markedly particularly if, as we expect, the rate is increased to 25% on 1 January 2019. But the result is likely to be a diversion of the source of US imports from China to other countries. South Korea or Japan could provide more high-tech goods while labour-intensive products could be sourced from Vietnam or Mexico. In addition, Chinese exports outside the US would increase. There would be some job creation in the US but this is likely to be limited and offset
by lower production by US companies facing higher input costs due to the tariffs.
The recent trade deal between the US, Canada and Mexico supports our view that the Trump administration does not want a full-scale trade war but is focusing on China.