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The U.S. trade deficit shrunk slightly in June, as did the politically sensitive trade deficit with China, the principal target of President Donald Trump’s tariffs.

The gap between the goods and services the U.S. buys and what it sells abroad fell 0.3% to $55.2 billion in June from May, the Commerce Department said Friday. Exports declined 2.1% to $206.3 billion on declines in shipments of autos, computers, crude oil and consumer products. Imports also fell, 1.7% to $261.5 billion, on declines in crude oil and petroleum products.

On Thursday, Trump escalated trade hostilities again, announcing the U.S. will apply a new tariff of 10% on about $300 billion worth of products from China beginning Sept. 1. China on Friday threatened retaliation if those tariffs are enacted.

The deficit in the trade of goods with China fell 0.8% to $30 billion.

The U.S. has already applied tariffs of 25% on $250 billion worth of goods from China. China retaliated with tariffs on $110 billion in American goods, including agricultural products, in a direct shot at Trump supporters in the U.S. farm belt.

Trump has sought to reduce America’s persistent trade imbalance, which he sees as a sign of economic weakness and the result of bad trade agreements crafted by previous U.S. negotiators. He has slapped tariffs on foreign steel, aluminum, dishwashers, solar panels and on thousands of Chinese goods.

He also has renegotiated a trade pact with Canada and Mexico that awaits approval by Congress. The June trade deficit with Mexico was $9.9 billion, the highest on record.

Earlier this week, Trump’s trade negotiators completed a 12th round of talks with China aimed at pressuring Beijing to curb its aggressive push to challenge American technological dominance. That includes curtailing cyber theft and forcing foreign companies to hand over proprietary tech information. More talks are planned in September.

Economists say the trade gap is the product of economic factors that don’t respond much to changes in trade policy: Americans buy more than they produce, and imports fill the gap. A strong U.S. dollar has also put American exporters at a price disadvantage overseas.

On Wednesday, the Federal Reserve cut its key interest rate for the first time in a decade, partly to counter the impact of Trump’s trade wars. A looming concern at the Fed is that Trump’s trade conflicts, with his punishing tariffs on hundreds of billions of dollars in Chinese and European goods, have escalated the uncertainty for American companies. Some companies have put off plans to expand and invest.

A survey by the American Chamber of Commerce in South China has found that U.S. manufacturers suspended nearly half their investment projects valued above $250 million because of uncertainty in U.S.-China trade relations.

On Thursday, the Institute for Supply Management, an association of purchasing managers, said its manufacturing index slipped for the fourth consecutive month. Although manufacturing sector has expanded for 35 straight months, that growth has slowed, with many blaming Trump’s aggressive use of tariffs.

Tensions escalated Thursday afternoon when Trump tweeted that the negotiations would continue, but blamed China for not following through on stopping the sale of fentanyl to the United States or purchasing large quantities of farm goods such as soybeans.

On Friday, China’s government accused Trump of violating his June agreement with President Xi Jinping to revive negotiations aimed at ending a costly fight over Beijing’s trade surplus and technology ambitions.

Trump’s announcement surprised Wall Street on Thursday, leading to a 600 point swing on the Dow. The Dow ended the day down almost 300 points and appears to be headed lower again Friday.

U.S. and Chinese envoys held “constructive” trade talks on Wednesday, the White House said, after President Donald Trump rattled financial markets by accusing Beijing of trying to stall in hopes he will fail to win reelection in 2020.

The meeting, aimed at ending a tariff war over trade and technology, ended about 40 minutes ahead of schedule. Neither delegation spoke to reporters before U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin left for the airport.

But White House spokeswoman Stephanie Grisham said in a statement hours later that “the meetings were constructive,” and that talks are expected to resume in Washington in September, though exact dates were not announced.

According to the statement, the Chinese confirmed their commitment to President Donald Trump to buy more U.S. agricultural exports, something Trump had publicly been casting doubt on.

Economists had said quick breakthroughs were unlikely because the two governments face the same disagreements over China’s technology policy and trade surplus that caused talks to break down in May. Trump and President Xi Jinping agreed in June to resume negotiations but neither has given any sign of offering big concessions.

The dispute over U.S. complaints that Beijing steals or pressures companies to hand over technology has battered exporters on both sides and disrupted trade in goods from soybeans to medical equipment. Trump has raised tariffs on $250 billion worth of Chinese imports while Beijing responded by taxing $110 billion of U.S. products.

Chinese leaders are resisting U.S. pressure to roll back plans for government-led development of industry leaders in robotics, artificial intelligence and other technologies. Washington complains those efforts depend on stealing or pressuring foreign companies to hand over technology.

For their part, American negotiators are reluctant to cede to Chinese demands that punitive U.S. tariffs be lifted immediately. Trump wants to keep some penalties in place to ensure Beijing carries out any agreement.

Rhetoric on both sides has hardened, prompting suggestions U.S. and Chinese leaders are settling in for a “war of attrition.”

In Washington, Trump accused Beijing of wanting to stall through the 2020 presidential election in hopes of being able to negotiate with a more malleable Democrat. He said that if reelected, he would get “much tougher” with Beijing.

“China would love to wait and just hope,” Trump told reporters Tuesday.

“They’ll pray that Trump loses,” he said. “And then they’ll make a deal with a stiff, somebody that doesn’t know what they’re doing.”

Separately on Twitter, Trump warned that if he wins in 2020, “the deal that they get will be much tougher than what we are negotiating now … or no deal at all.”

Asian stock markets tumbled Wednesday after Trump’s comments. The Shanghai Composite Index shed 0.7%, Hong Kong’s market benchmark dropped 1.3% and Tokyo lost 0.9%.

Trump’s “aggressively tinged” remarks were a “stark reminder to investors that the U.S. and China are no closer to an agreement and, in fact, might be drifting farther apart,” Stephen Innes of VM Markets said in a report.

Negotiators in Shanghai were also expected to discuss the fate of telecom equipment giant Huawei Technologies Ltd. Washington put the company, China’s first global tech brand, on a security list in May that blocks purchases of U.S. components and technology.

The United States says Huawei is a national security threat, an accusation the company denies. Trump has said it could be a bargaining chip in the trade dispute.

Treasury Secretary Steven Mnuchin is returning to China next week to further talks aimed at resolving a trade battle between Washington and Beijing.

Mnuchin told reporters at the White House that he and U.S. Trade Representative Robert Lighthizer will spend Tuesday and Wednesday meeting with Chinese leaders in Shanghai. He says he expects more meetings before any deal is done, with the next round likely in Washington.

Mnuchin says he sees it as a good omen that China chose to meet in Shanghai. Shanghai is where the U.S. and China conducted diplomacy aimed at normalizing relations during the Nixon administration.

The White House said afterward that the talks will cover a range of issues, including intellectual property, forced technology transfers, non-tariff barriers, agriculture, the U.S.-China trade deficit and enforcement.