YOUR DAILY EDGE: 11 April 2025

China Raises Tariffs on US to 125% and Says It Won’t Go Higher

China will raise tariffs on all US goods from 84% to 125% starting April 12, and said it plans to ignore any further increases announced by Washington from here because the Trump administration’s moves have become a “joke.”

The announcement by the Ministry of Finance on Friday came after the White House clarified that levies on Chinese goods rose to 145% this year. China said it no longer makes economic sense if the US imposes more tariffs.

“Given that American goods are no longer marketable in China under the current tariff rates, if the US further raises tariffs on Chinese exports, China will disregard such measures,” according to the statement.

In a separate statement, the Commerce Ministry said Washington’s repeated use of excessively high tariffs has become little more than a numbers game — economically meaningless and revealing its use of tariffs as a tool for bullying and coercion. “It’s become a joke,” the ministry said.

However, China warned that it will “resolutely counterattack and fight to the end” if the US continues to infringe on its rights and interests. It also said America should take full responsibility for the damage caused by the tariffs. (…)

Authorities on Thursday moved to cut the number of American films allowed in Chinese theaters, suggesting broader retaliation beyond goods may be underway.

Chinese officials on Wednesday cautioned citizens against traveling to the US, and warned students of security risks related to studying in “certain US states” — a departure from Xi’s push to improve people exchanges. (…)

Almost $700 billion of goods are now exchanged between the US and China each year. If a deal to deescalate the situation isn’t reached, the steeper duties will result in both Chinese and American consumers and companies facing higher prices across the board as people work out how to rejig their supply chains to minimize their tariff bill.

Last year, the three biggest US imports from China were smartphones, laptops and lithium-ion batteries, while liquid petroleum gas, oil, soybeans, gas turbines, and machines to make semiconductors were some of the most valuable US exports to China.

The WSJ adds:

(…) Some of the most intense action has shown up in foreign exchange. The U.S. dollar was falling Friday for a fifth straight day, dropping more than 1% and putting it on track for its worst week since 2022. The euro was up 2% Friday and at a three-year high. The Swiss franc surged 3.5% Thursday, a large move for a heavily traded currency. (…)

Chinese leader Xi Jinping said that if the showdown continued, his country “is not afraid.” (…)

Does Trump Have a China Trade Strategy? If he wants Beijing to change, he needs the allies he’s tariffing.

The WSJ Editorial Board is not mincing words:

It’s all going according to plan, says the White House, and you almost have to smile at this spin in trying to sell President Trump’s partial tariff reversal this week as a triumph. The reality is that Mr. Trump is making it up as he goes, and it would help if he had an actual strategy to deal with China in particular. (…)

Treasury Secretary Scott Bessent says the U.S. trade goal all along has been to isolate China as a main offender. (…)

But it isn’t clear what Messrs. Trump and Bessent want from China, and what their strategy is to achieve it. Do they want a complete decoupling of the two economies? That’s what tariff levels of 145% suggest. But that also means large economic disruption in the near and medium term, as some $600 billion in two-way trade goes away or finds new sources and destinations. Strategic decoupling on key goods makes more sense.

Yet that’s not what Mr. Trump says he wants, and on Wednesday he said he still hopes for a trade deal with China. The tariffs in that case are merely his lever for getting President Xi Jinping to the table. The problem is that tariffs are a blunderbuss weapon that hurts Americans as much as it does Chinese exporters. Markets are saying the U.S. economy will suffer too.

There’s also the contradiction of how Mr. Trump handles other China issues. The President is doing Mr. Xi a favor by refusing to enforce a law passed by Congress to force the sale of TikTok from Chinese-controlled ByteDance. Last week he extended the deadline for a TikTok sale by another 75 days after China walked away from a looming transaction. Mr. Trump also refuses to impose sanctions on Chinese firms that buy oil from Russia and thus help Moscow’s war machine. These decisions send Mr. Xi the message that Mr. Trump isn’t serious about challenging Chinese abuses.

If Mr. Trump is serious, the best strategy would be to rally allies to the cause of fighting Chinese mercantilism. But he shows no interest in that either. He squandered his best chance to isolate China on trade in his first term by walking away from the Trans-Pacific Partnership that didn’t include Beijing. China then cut its own deal with many of the countries that the U.S. left in the cold.

This term Mr. Trump is outright punishing the allies he needs for a coherent China strategy. He’s imposed tariffs on Canada and Mexico and insulted Canadian national pride. He’s hit Japan with 24% tariffs, South Korea with 25%, and Europe with 20%. He’s hit Vietnam with 46%, though the boom in that country’s exports to the U.S. since his first-term tariffs has come at China’s expense.

Those tariffs are now paused for 90 days, but all of these countries know Mr. Trump could hit them again at any time. He’s also insulted Japan by refusing to let Nippon Steel buy U.S. Steel despite its pledge to invest billions of dollars in U.S. manufacturing. Why should these allies trust Mr. Trump now, if he says he needs them to unite to slow China’s advance of artificial intelligence? They may need China’s market if they can’t access the U.S.

Mr. Trump’s intellectual problem, or at least one of them, is that he’s fixated on the U.S. trade deficit with friend and foe. The deficit is a non-problem in economic terms. And if there are trade issues with allies, they can be addressed with bilateral or multilateral trade deals.

By far the biggest problem in the global trading system is the abuse of free-trade rules by the authoritarian regime in China. Mr. Trump’s ad hoc, scattershot tariff policy won’t solve that problem. So far he’s hurting his own cause and country more than he’s hurting the Chinese Communist Party.

Back to BB:

The greenback has become the latest victim of market turmoil as the trade war risks pushing the US into a recession. The haven status of Treasuries and the dollar’s position as a reserve currency are being questioned amid a broader exodus from US assets.

“The question of a potential dollar confidence crisis has now been definitively answered – we are experiencing one in full force,” ING Bank NV strategists including Francesco Pesole wrote in a note. “The dollar collapse is working as a barometer of ‘sell America’ at the moment.” (…)

The dollar gauge has lost more than 6% since its February peak (…).

“The main player of global trade just tore down the play-book and we don’t know what his endgame is,” said Olivier Baduel, head of European equities at OFI Invest AM in Paris. “We’re witnessing a loss of visibility and we are still in a phase of uncertainty.”

• The Dollar and the Bond Market’s Ominous Message for Trump In the turmoil touched off by a trade war, the U.S. is no longer seen as safe

(…) Normally when investors are this scared they seek safety, and nothing is safer than the dollar and Treasury debt. 

But despite mounting fear of recession, the usual flight to safety hasn’t materialized. That is for several reasons, some relatively superficial, such as inflation risks, and one more fundamental. (…)

The U.S. is still exceptional, but it is also less predictable, more antagonistic, and more isolated. For foreign investors, that makes it less safe. (…)

Inflation might be part of the explanation now. Tariffs will hurt demand and economic growth, which would normally prompt the Fed to lower interest rates. But tariffs will also raise inflation, at least temporarily, which makes it harder to justify rate cuts.

Nonetheless, with recession risks rising sharply, traders are now betting the Fed will cut rates this year. So the Fed isn’t the main reason bond yields are up.

Technical factors might be playing a role. Hedge funds might have been forced to liquidate bondholdings after their positions went against them, and dealers have done less to smooth out volatility.

Nonetheless, technical factors can’t explain why bonds and the dollar began behaving strangely weeks ago. The more fundamental explanation is that global investors might be changing how they view the U.S. (…)

Jason Thomas, head of global research at Carlyle Group, noted that since early 2022, gold has strongly outperformed inflation-protected Treasurys, suggesting that gold is now the world’s preferred safe-haven asset.

Thomas said that after Russia invaded Ukraine, the U.S. and its allies froze the Russian central bank’s foreign-exchange reserves. In recent months, Trump’s policies suggest the U.S. will play a less central role in global trade, making the dollar less important for invoicing exports and imports, he added. As a result, Thomas said, “The global community and central bank reserve managers are just a bit more hesitant when it comes to adding to Treasury exposure.” (…)

Less demand for dollar assets makes it harder to finance the U.S.’s massive borrowing.

Now, if the trade deficit falls, the U.S. won’t have to sell as many assets to foreigners to finance that deficit.

And yet it would still be at the mercy of such investors. As of last June, foreigners held $7 trillion of Treasury bonds (half by official investors such as central banks). That is about a third of the total held by the public. The federal budget deficit is running at around $2 trillion a year, or 7% of gross domestic product, and Senate Republicans just passed a budget resolution that would continue outsize deficits for the foreseeable future.

So the U.S. needs foreigners to keep rolling over the bonds they hold, and buying new ones. Even a small pullback would cause yields to jump. Jay Barry, head of global rates strategy at JPMorgan Chase, estimates that yields rise a third of a percentage point for each $300 billion decline in foreign official holdings of Treasurys.

There were recent fears that China might try to retaliate against Trump’s tariffs by selling some of its own bondholdings. There is no evidence that it has, but the possibility has highlighted the risks to the U.S. of a trade war morphing into financial war.

In 2022, the U.K.’s new prime minister, Liz Truss, proposed a steep tax cut. British bond yields immediately skyrocketed, the tax cut was withdrawn, and Truss resigned. The dollar’s reserve status was long assumed to insulate the U.S. from such a fate. Events of the past few weeks suggest Trump shouldn’t take that for granted.

• Treasuries and the dollar get their strength from “the world’s perception of the competence of American fiscal and monetary management and the solidity of American political and financial institutions,” said Jim Grant, founder of Grant’s Interest Rate Observer, a widely followed financial newsletter. “Possibly, the world is reconsidering.” (Jim Grant)
• “Long-term interest rates are gapping up, even as the stock market moves sharply downwards,” Summers, who is also a paid Bloomberg contributor, wrote this week in a social media post. “We are being treated by global financial markets like a problematic emerging market,” he said, adding that “this could set off all kinds of vicious spirals, given government debts and deficits and dependence on foreign purchasers.”

Trump Tariffs Put US Services Trade Surplus With China at Risk

China is signaling it may target US services exports as payback for President Donald Trump’s record tariffs, putting a lesser-known but sizable part of their trade relationship at risk.

While most of the focus in Washington is on the US goods deficit with China, services have long been a bright spot for American companies. Last year alone, the US sold a net $32 billion in services to China — including education, travel, and entertainment — and nearly $300 billion globally.

That flow could now be in Beijing’s sights. Two prominent Chinese bloggers posted identical lists of possible countermeasures this week that included curbs on US services. Authorities have already moved to cut the number of American films allowed in Chinese theaters, suggesting broader retaliation beyond goods may be underway. (…)

Here’s a revelation! The U.S. is the foremost exporter of services globally.

In the NYT on April 2:

President Trump says he is outraged by the fact that the United States imports more goods than it sends to the rest of the world. What he rarely mentions, though, is that when it comes to services, the tables are turned.

Service sectors — which include the finance, travel, engineering and medical industries and more — make up the bulk of the American economy. Exports of these services brought more than $1 trillion into the United States last year. (…)

The United States is the largest exporter of services in the world, and a large share of those services, from financial services to cloud computing, are delivered digitally. The country ran a trade surplus in services of nearly $300 billion last year.

Every time a European tourist stays at a U.S. hotel, for example, the money spent is counted in the services export basket. And every time someone in Canada or Japan or Mexico pays to listen to music or watch movies and television shows made in the United States, they are adding to America’s surplus in the services trade.

Many of the countries that the United States is targeting for tariffs run a services deficit with the United States, including Canada, China, Japan, Mexico and much of Europe, according to the U.S. Census Bureau. (…)

I asked my favorite AI agent to search for Trump ever discussing or even referring to services:

The search results do not indicate any specific instances where Trump has directly addressed or focused on trade in services in his public statements or policy announcements regarding trade.

It’s not that Trump knows nothing of the service industries, he spent his life and made his fortune in services such as real estate, tourism, and entertainment.

The NYT continues:

“The E.U. is now equipped with policy tools to extend the range of retaliation against U.S. tariffs to target imports of U.S. services,” Filippo Taddei, a managing director of global investment research at Goldman Sachs, wrote in a research note about possible European responses.

Arguably the most extreme option is known as the Anti-Coercion Instrument. First proposed in 2021, the tool is largely untested, but it allows the European Union to hit a trading partner with a “wide range of possible countermeasures.”

Such measures could include tariffs, restrictions on trade in services and limits on trade-related aspects of intellectual property rights. That could affect American tech giants like Google. Several European diplomats said that use of the tool is a distinct possibility, should the trade war escalate.

It’s one thing to bully the world when your 344 million population is gobbling some $7 trillion in manufactured goods per year with some $2.3T imported according to the Domestic Market Share Index (DMSI).

But it could be something else when it comes to services, 70% of the U.S. economy, aimed at Europe (745M people), Latin America (653M), Africa (1.3B) and Asia (4.6B).

Remember how “giant” Gulliver was eventually put down by a horde of tiny Lilliputians.

Bloomberg has more China-centric info:

• Almost a third of US services exports to China were related to education, coming from tuition and living expenses for the 270,000 Chinese students studying in the US, according to the most recent data from the Institute of International Education.
• Travel is another major US export to China, thanks to the millions of Chinese tourists visiting each year, which far outnumber the Americans who travel in the other direction.
• US banks and insurers ran a $2.5 billion surplus with China in 2023.
• Companies like Microsoft Corp. and Amazon.com Inc. exported $1.6 billion more in software, cloud computing and other digital services to China than the the US imported in 2023.
• The US is still running a surplus in entertainment exports to China — including books, movies and TV shows.

Meanwhile:

As U.S. Fights China, Europe Courts It

As the U.S. and China hits out at each other, Europeans are forming an orderly line to Beijing.

On Friday, Chinese President Xi Jinping hosted Spain’s Prime Minister Pedro Sánchez to discuss the impact of U.S. tariffs, Madrid’s trade deficit with Beijing and other matters, according to the Spanish government. (…)

The meeting followed a discreet trip to China from the head of Britain’s military, Admiral Tony Radakin. “We agreed that in an unstable world we must play our part as responsible nations with global interests,” Radakin announced on X.

Ursula von der Leyen, the president of the European Union’s executive arm, is set to visit Beijing for a summit with Xi in late July, the South China Morning Post reported.

Deepening Trade Fight With China Poses New Threat to U.S. Farmers Soybean producers warn that farms could go under as the Trump administration hits China with new tariffs of 145 percent.

After China unveiled steep retaliatory tariffs on American exports on Wednesday, Treasury Secretary Scott Bessent issued a sharp and somewhat surprising response: “So what?” (…)

But Beijing’s decision to retaliate against President Trump’s punishing tariffs by raising levies on American imports to 84 percent could sting more than Mr. Bessent let on.

“American companies that have been selling to China, and have been enormously successful doing that, are not going to be able to do that because of Chinese retaliation,” Sean Stein, the president of the U.S.-China Business Council, said in the hours before Mr. Trump ratcheted up his tariffs again. (…)

The loss of China as an export market will deal a particularly hard economic blow to agricultural workers in many red states, hitting many of the voters who helped Mr. Trump win the presidential election. (…)

The first trade war with China, which lasted from 2018 to 2019, resulted in billions of dollars of lost revenue for American farmers. To help offset the losses, Mr. Trump handed out $23 billion in subsidies from a fund that the Department of Agriculture created to stabilize the farm sector. Large farm operations and farmers in the South benefited the most, fueling concerns about fairness and leaving some farmers feeling cheated. (…)

China is America’s largest soybean export market, but when Mr. Trump imposed tariffs on Chinese goods during his first term, Beijing retaliated by buying soybeans from other countries, including Brazil.

“If this lasts long term, we’re going to have a significant number of farmers going out of business,” said Caleb Ragland, a Kentucky farmer who is president of the American Soybean Association. “We still bear scars from the last trade war.” (…)

U.S. corn farmers, who sell about 2 percent of their products to China, have also been on edge about the trade fight. (…)

“The longer that uncertainty exists, the more concerned we become that our growers could harvest billions of bushels of corn for which they will not have reliable markets,” said Kenneth Hartman Jr., president of the National Corn Growers Association. “Our farmers want certainty that our customers at home and abroad will buy our products in the months and years ahead.” (…)

Mr. Bessent downplayed the impact of China’s response on Wednesday morning, arguing on the Fox Business Network that the United States exports relatively little to China. (…)

The retaliation could force the Trump administration to revive the bailouts to American farmers that were offered during the president’s first term.

Brooke Rollins, the agriculture secretary, said on Wednesday that such a relief package was being considered and that “everything is on the table.”

(…) almost all of the tariff proceeds the United States collected during that trade war were used to provide relief to the agriculture industry. (…)

Who Noticed the Good News?

Irony of ironies. On a day when the battle to save the value of the dollar in the pockets of US consumers seemed finally to be won, its value to everyone else sank. Inflation is yesterday’s news, it appears, and the currency’s fate is now driven by confidence and the uncertainties surrounding tariffs that are yet to affect prices.

The consumer price index data for March, announced Thursday morning, were about as good as anyone could have reasonably expected.

(…) core measures were remarkably healthy. Sticky prices, on products whose prices are difficult to move, dropped to the lowest rate since early 2022. The trimmed mean and median measures both fell, showing disinflation was broad-based, while the “supercore” measure of services excluding shelter, much emphasized by the Federal Reserve, has suddenly tumbled below 3%:

Shelter, central to the crisis in living costs and main driver of the overall index for the last two years, dropped below 4%; exclude it and the rest of the index is inflating at less than 2%:

If there is any carping to be done, it’s that the reduced price pressure owes much to a slowdown in activity driven by the early actions and pronouncements of the Trump administration. Air fares fell, surprisingly, while hotels in the northeastern US had to reduce their rates — both probably attributable to Canadians’ new-found aversion to visiting their neighbors to the south. (…)

All of this after the good news that the dollar was retaining more of its value at home, thanks to lower inflation. More remarkably, the European economy is far weaker and the euro zone is under intense pressure — yet traders behaved as though the euro was almost as reliable a haven as the Swiss franc. (…)

The dollar’s slump has come as Treasury yields have risen sharply above German bunds — itself a remarkable occurrence only weeks after Germany committed to its biggest fiscal expansion in generations (largely in response to the Vance speech as it decided it could no longer treat Washington as a reliable ally). (…)

The real 30-year yield, as pure a measure of the cost of long-term money as exists, has now reached a high only previously seen during the spasm that followed the Lehman Brothers bankruptcy in 2008:

It’s hard not to write about this in terms that sound apocalyptic. But it’s also hard to cast this as anything other than a significant loss of confidence in the US. It doesn’t have to be terminal. The shock of the debt-ceiling crisis in 2011 turned out to be a major turning point that was followed by a decade of American Exceptionalism. But the moves in the bond and currency markets — to a far greater extent than stocks (which by the way endured a massive selloff Thursday and gave up more than half of Wednesday’s gains) — ram home that a lot is at stake. And the US is currently embarked on what appears to be a wholesale change in foreign policy, not struggling to get things back to normal as Barack Obama tried in 2011. (…)

The problem is that almost all economic data is now coming off as backward-looking. Nobody cares. Similarly with the corporate earnings season, kicked off Friday morning by the big banks, there will be minimal interest in how things went in the first quarter. All now depends on what CEOs have to say about how they’ll live in a new world in which the US and China have effectively imposed a trade embargo on each other.

Is anything more sinister afoot? It’s possible that some large hedge fund is in trouble, and likely that central banks and sovereign wealth funds are having a role in driving these moves. That wouldn’t necessarily be motivated by politics; they might simply and prudently be deciding to scale back exposure to the US. And as Points of Return has pointed out, international exposure to American assets is historically high, so such a move could go on for a while and become self-reinforcing.

Here’s why nobody cares about this good CPI:

April 10: The Yale Budget Lab estimated the effects all US tariffs and foreign retaliation implemented in 2025 through April 9, including the revised April 9 tariffs.

Consumers face an overall average effective tariff rate of 27%, the highest since 1903. Even after consumption shifts, the average tariff rate will be 18.5%, the highest since 1933.

The price level from all 2025 tariffs rises by 2.9% in the short-run, the equivalent of an average per household consumer loss of $4,700 in 2024$. Annual pre-substitution losses for households at the bottom of the income distribution are $2,100. The post-substitution price increase settles at 1.7%, a $2,700 loss per household.

“That’s almost 18 months of normal inflation happening in very short order,” said Ernie Tedeschi, economics director at the Budget Lab.

Tariffs are a regressive tax, especially in the short-run. This means that tariffs burden households at the bottom of the income ladder more than those at the top as a share of income. The regressivity is about the same when looking at all 2025 tariffs: the burden on the 2^nd decile is 2.5x that of the top decile (-4.9% versus -2.0%). The average annual cost to households in the 2^nd, 5^th, and top decile rise to $2,100; $3,700; and $10,000 respectively.

The 2025 tariffs disproportionately affect clothing and textiles, with consumers facing 64% higher apparel prices in the short-run. Apparel prices stay 27% higher in the long-run.

Food prices rise 2.6% in the short-run and stay 3% higher in the long-run. Fresh produce is initially 5.4% more expensive while stabilizing at 3.9% higher.

Motor vehicle prices rise 12% in the short-run and 19% in the long-run, the latter the equivalent of an additional $9,000 to the price of an average 2024 new car.

All 2025 US tariffs plus foreign retaliation lower real GDP growth by -1.1pp over calendar year 2025 (Q4-Q4). The unemployment rate ends 2025 0.55 percentage point higher, and payroll employment is 740,000 lower that same quarter. The level of real GDP remains persistently -0.6% smaller in the long run, the equivalent of $170 billion 2024$ annually, while exports are -16% lower.

The unemployment rate rises 0.6 percentage point by the end of 2025, and payroll employment is 740,000 lower.

Canada has borne the brunt of the damage from US tariffs so far, with its long-run economy -2.2% smaller in real terms (reflecting both US tariffs and Canadian retaliation to date). China’s economy is -0.6% smaller, identical to the hit to the US. The EU economy is 0.1 percentage point larger in the long-run, while the UK’s is 0.2% bigger.

The FT adds: “The first changes would be on the produce aisle, where price increases would begin before the end of the month, Tedeschi said. The US imports 59 per cent of the fresh fruit and 35 per cent of the vegetables Americans consume, according to the agriculture department.”

$50-a-Barrel Oil Is a Problem for US Trade Deficit Shale producers reversed the US oil deficit. Now they face ruin at $50-a-barrel.

The US oil industry has done more to reduce its country’s trade deficit than any other.
Thanks to geological luck, engineering prowess, and shrewd capitalism, the shale revolution turned what two decades ago was a nearly $400 billion-a-year oil trade deficit into a $45 billion surplus in 2024. Now, President Donald Trump, in theory the champion of “drill, baby, drill,” risks killing it. (…)

As oil prices plunged 17% in a week, US Treasury Secretary Scott Bessent was on television cheerleading the crash. Part of the decline is the collateral damage from the tariff drama of recent days, but the White House’s fingerprints are all over the other part: diplomatic pressure on OPEC+ to increase output.
The Trump administration seems to be motivated by a desperate attempt to cushion the inflationary impact of the trade war with cheap oil. Yet, $50-a-barrel will have another macroeconomic consequence: widening the trade deficit that Trump wants to reduce. Drill, baby, drill doesn’t work at $50-a-barrel – and if the US doesn’t drill, it must import. (…)

US total oil production – including crude, condensates and other liquids — boomed, rising to 20.1 million barrels a day last year, up from 6.7 million in 2008. Alongside, oil imports collapsed. The 11 million barrels a day of net oil imports during the late Bush presidency turned into net exports of more than 2 million barrels a day by the time Joe Biden left the White House.

The oil export boom reduced the overall trade deficit, created thousands of blue-collar jobs in Texas, North Dakota and other typically deprived areas of America and supported manufacturers. It helped that the OPEC cartel cut production to keep prices high, in effect subsidizing shale.
Now, the US oil patch is getting a taste of what a free market looks like. It’s difficult to feel a lot of sympathy for it. The sector got what it voted for: Trump won in Midland, the Texas town that’s the capital of the shale revolution, with 79.6% of the vote. Former Vice President Kamala Harris got about 19%. It was similar in other oil-rich counties. Careful what you wish for comes to mind.
Here’s the problem: shale isn’t cheap. On average, producers say they can’t drill profitably below $65 per barrel versus a threshold of $49 in 2020, according to the Federal Reserve Bank of Dallas. Importantly, with shale, small price changes matter a lot: the difference between booming production and falling output is measured in a handful of dollars. At $50, many are staring at financial calamity; $55 is a trough but can be survived; $60 isn’t great, but money still flows; at $65 everyone is back drilling more.

Assume that the worst comes, and oil prices fall to $50, the unofficial target of the White House. Under that scenario, total petroleum production in America will probably decline by 1 million barrels a day by the end of 2025 or early 2026. To complete the exercise, assume that domestic oil demand also falls a bit as the economy cools. Still, back of the envelope math suggests the US would probably need to import an additional 750,000 barrels a day to cover the shortfall between domestic demand and local production. Even at $50 a barrel, that adds nearly $14 billion to the trade account. It’s about the size of the American trade deficit with France, with all its wines, champagne, and foie gras. Reduce oil output further; increase imports more, and soon the numbers are quite material.

Trump is wishing for an oil crash. In the process, he will destroy what has been the most efficient tool to reduce the US trade deficit over the last 20 years. That seems ill-conceived. But then, almost all White House trade policy is.