AILSA CHANG, HOST:
The U.S. and China are getting ready for their next round of trade talks in a few weeks. With that in mind, China announced today that it is suspending tariffs on some U.S. exports. There are also hints that China could start buying more American farm products. This news comes amid signs the trade war is taking an economic toll on both sides of the Pacific.
For more, NPR's Scott Horsley joins us now. Hey, Scott.
SCOTT HORSLEY, BYLINE: Howdy.
CHANG: So President Trump tweeted today about Beijing's decision to lift some tariffs, calling it a sign that China is, quote, "being hit very hard" by the trade war. What do you think? Is this a sign that China is backing down?
HORSLEY: Backing down would be an overstatement. This might be a little bit of an olive branch from Beijing, but very little. The items on which they are suspending tariffs are pretty minor things, like industrial grease and some animal supplements, not our marquee exports.
HORSLEY: Now, there is no question China's economy has taken a hit from the trade war. But David Dollar, who's a former Treasury and World Bank economist who studies China, says Beijing has hardly been brought to its knees.
DAVID DOLLAR: China's overall exports this year, in U.S. dollar terms, are basically flat. They are exporting less to the U.S., as you'd expect, but they're exporting more to Europe and Southeast Asia and other parts of the world. Flat is not good, but it's also not a decline.
HORSLEY: In contrast, Ailsa, U.S. exports have been lower than last year every month since March. Now, that's partly because of slowing demand in other countries, but the trade war is not helping.
CHANG: Sure. And how is that drop in U.S. exports affecting the broader economy?
HORSLEY: The U.S. economy's not as dependent on exports as countries like China. A lot of what we produce in this country is consumed in this country. But the export slowdown has hurt the manufacturing sector. At the same time, factories have had to cope with higher costs for imported goods because of the president's tariffs.
What's more, Dollar notes the fallout from the trade war has been concentrated in particular parts of the country, which could turn out to be politically significant.
DOLLAR: Manufacturing employment was up slightly in the most recent report, but it's down in Wisconsin and Pennsylvania, some of the key battleground states.
HORSLEY: That could get the president's attention because those are states he narrowly won three years ago...
HORSLEY: ...And states he'll likely need to carry again if he's going to win reelection.
CHANG: So do you think this factory slump will give the president - I don't know - second thoughts about this whole trade war?
HORSLEY: It's hard to tell what the president will do, but, presumably, this is being watched closely by both his economic and political advisers. A few days ago, we got a forecast from Deutsche Bank Securities that put out a pretty gloomy assessment of what the trade war has done to the U.S. Deutsche Bank's chief U.S. economist Michael (ph) Luzzetti says that could force Trump to reconsider plans to impose new and higher tariffs on China in the next few months.
MATTHEW LUZZETTI: If you do not get a pullback, and certainly if you get further escalation from here, we'd be worried about a more severe slowdown than we have built in.
HORSLEY: Luzzetti's warning that if Trump doesn't blink and instead actually goes through with those higher tariffs in October and new tariffs in December, we could be looking at a mild recession next year.
CHANG: OK, so let's say if the Trump administration or China were looking for some sort of off-ramp out of this whole trade war, what would that even look like?
HORSLEY: Maybe it would mean a suspension of those tariffs in October. Maybe it would mean China buying some more farm goods. Dollar, however, is not optimistic that we're going to see the kind of big, sweeping agreement that would address intellectual property protection - that sort of thing, the kind of issues that the president talked about when he launched this trade war in the first place.
DOLLAR: I think the best we can hope for at this point is a minideal. But the real, ultimate deal that both sides are looking for - seems the two sides are far apart for that kind of comprehensive agreement.
HORSLEY: And, Ailsa, the next round of talks is set to get underway early next month.
CHANG: OK. That's NPR's Scott Horsley.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.