As Trump Talks of China Deal, Tariffs Begin to Erode Trade

Key Takeaways

• President Donald Trump said Sunday that the high tariffs against China, imposed in April, are only meant to be temporary, raising hopes in financial markets of a trade deal between the world's two largest economies.
• With no deal on the table yet, the tariffs are starting to bite businesses that source products from China, according to recent surveys.
• Economists have warned the U.S.-China trade war could be disruptive to both economies and punishing to U.S. consumers who will face higher prices on everyday products.

President Donald Trump's sky-high tariffs against China are starting to affect the economy, even as the president suggested the import taxes will be lowered eventually.

In an interview broadcast Sunday, Trump said the 145% tariff he imposed on China this month isn't meant to be permanent, raising hopes in financial markets that the world's two largest economies will strike a trade deal.

"At some point, I’m going to lower them because otherwise, you could never do business with them. And they want to do business very much," Trump said in an interview on NBC's "Meet the Press" Sunday.

Talk of a deal is still just that so far. For its part, China has reportedly said it is open to discussions about a deal that would de-escalate the trade dispute between the two countries. However, no formal discussions have been planned yet.

In the meantime, warning signs are starting to flash about how tariffs affect the U.S. economy.

Economists have warned that the high tariffs against Chinese products could result in higher prices for U.S. consumers and shortages at retailers. Those concerns started to materialize in the Institute for Supply Management's surveys of manufacturing and service industry professionals for April.

"Tariffs are negatively impacting small business customers. Many small business customers source their products from China," an anonymous businessperson in agriculture, forestry, fishing and hunting, told ISM in a report released Monday. "They cannot afford to compete in the marketplace sourcing from other countries. We could not move products fast enough to beat the tariff starting dates.”

Earlier this month, manufacturers voiced similar concerns.

“Tariff trade wars are incredibly volatile, quickly changing, and disrupting a ton of our current work," someone in the apparel, leather, and allied products business told ISM. "We are 90% sourced out of China, and the cost models keep changing every week. We are flying to visit suppliers in a few weeks to negotiate current terms and pricing, as well as develop more long-term, strategic plans to reduce risk in the region.”

While key measures of the economy's health held steady in April, with unemployment and inflation staying subdued, some hard data pointed to rougher times ahead. Container ship traffic leaving China for the U.S. plunged 35.1% over the month in the week ending May 1, retreating after imports surged in the days leading up to the tariff deadline, according to data from Morgan Stanley released Monday.

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