Narrower, but not by much 

China's trade surplus with the United States narrowed modestly last month, according to data published Wednesday by customs officials, but the year-to-date figures are well ahead of the record pace set in 2017, suggesting Beijing's willingness to allow the yuan to weaken against the dollar is softening the impact of White House trade policy.

China's exports to the United States fell 2.5% from June, the General Administration of Customs said, as the first of the planned $250 billion in tariffs on China-made goods kicked in on July 6. But that figure was still up 19% from the same period last year, and even as a 1.5% decline in U.S. imports allowed the July surplus to narrow to $28.09 billion, the year-to-July figure of $161.63 billion likely means China hasn't fully been affected by the escalating trade war. 

"The only thing we can conclude is that the tariff impact in July was not obvious but subtle monthly changes show that tariffs are changing the behaviour of some exporters and importers, and we expect this to become more visible in the coming months," said ING economist Iris Pang. "Although we saw monthly declines in various items, we can't attribute this to the US move, particularly because not all of the items were even on the tariff list. As such, we think the export data has yet to reflect the full impact of the latest trade action."

That action came overnight in the form of a statement from the U.S. Trade Representative's office, which said it would start collecting 25% tariffs on a further $16 billion in China-made goods on August 23, a move that puts the current total of products subject to levies at $50 billion. The U.S. is also seeking public consultation on tariffs linked to another $200 billion, while President Donald Trump said last month that he's "ready to go to $500 billion" in order to address what he has called an unfair trade deficit with the world's second largest economy.

"This is the time," Trump told CNBC, to go after the trade imbalances between Washington and its allies and competitors. "You know the expression, 'we're playing with the bank's money?' This is the time."

"Sitting here, I could just let all of these countries continue on with their massive deficits ... they are taking advantage of us. We are being taken advantage of and I don't like it. China has $507 billion a year in deficits with the United States," the President said, citing figures that contrast sharply with official data that pegs the 2017 total at $375 billion. "With the EU, $151 billion, with Mexico $120 billion. Mexico, who would think Mexico?"

The trade data follows figures published yesterday by the State Administration of Foreign Exchange (SAFE), which showed China's pile of foreign currency holdings swelled by more than $5 billion last month as the yuan fell to the lowest level in more than a year amid the brewing trade tensions between Washington and Beijing.

The SAFE said foreign currency reserves, which include U.S. dollars, topped $3.118 trillion in the month of July and rose much faster than the $1.51 billion gain record in the previous month. Gold reserves, the SAFE said, dipped by $1.747 billion to $72.324 billion.

The accumulation of foreign exchange reserves also suggests the People's Bank of China isn't spending U.S. dollars to defend the slumping yuan, which fell some 3% against the greenback over the month of July -- before hitting the lowest level in more than 14 months in August -- as investors exited the currency amid the escalating trade war and persistent signals of slowing economic growth.