How US is hurting itself in the tariff war

After months of trade threats, the Donald Trump administration announced its 25 percent tariff on $34 billion of Chinese imports effective in early July, while threatening levies on another $16 billion of imports. To defend its sovereign interest, China responded by imposing 25 percent tariffs on $34 billion of US imports, and recently announced an additional tariff of 25 percent on $16 billion of US imports effective on Aug 23.

Last year, US President Donald Trump's threats caused Chinese investment in the United States to plunge to $29 billion from $46 billion, partly due to deleveraging in China but mainly thanks to very stringent US regulatory reviews of inbound acquisitions. After months of tariff war, Chinese investment in 2018, asset divestitures included, is negative in the US.

Ironically, much of the collateral damage will hit the US, however. Historically, advanced economies tend to enjoy service surpluses but goods deficits in trade, thanks to higher productivity and added value. And US-Chinese trade ties are no exception.