The US Trade Deficit With China–What Does it Really Mean?

By | May 10, 2016

The USCBC has recently written an article over at China Business Review about the US trade deficit with China. The information in the article dispels many misconceptions about US trade with China and clears up what exactly a “trade deficit” means—more goods bought from overseas than manufactured in-country. Many people from the US view the trade deficit negatively, when in fact it is just a natural part of the global economy.  This information is extremely important to understand, as the US currently is in the process of electing its next president. The presidential candidates are all taking aim and appealing to public sentiments, including trade with China. According to polling by the Pew Research Center, more than half of Americans are concerned about the US trade deficit with China; thus it is very important we all begin to understand this phenomenon moving forward in international trade.

It’s true, the US has a very bulky bilateral trade deficit with China. This deficit is larger than it was two decades ago, some time before China joined the World Trade Organization. The fact of the matter is, everything related to the US economy is much bigger than it was twenty years ago. In fact, the US economy has grown two-fold since then.TFDeficitSocial

“Much of what we import from China is stuff we imported for decades from other East Asian economies — Japan, South Korea, Taiwan, and Hong Kong. In 1996, our trade deficit with East Asia (including China) was two-thirds of our total trade deficit; it was about the same in 2015, although larger in total value.”

With the expansion of the economy, US citizens have bought more products from everywhere, not just China. In fact, the US total trade deficit was about two percent of our GDP in 1996, and has grown to four percent in 2015, which is not large in any standard, historical or international.

“When you look at the data, the trade deficit with East Asia as a whole and the trade deficit with the rest of the world have each also about doubled during this time, but remain proportionately the same. What has changed is that China’s portion of our deficit with East Asia has increased, while the share held by other East Asian economies has decreased.

Think of the TV in your living room. The label probably says “made in China” today; 20 years ago it probably said “made in Japan.” The last time the United States was a major TV manufacturer was in the 1960s, so those TVs are not replacing U.S. production. Many imports from China share a similar story.”4342_us-china-trade-image

The fact is that the US has a trade deficit specifically because our country buys stuff we don’t make here, which is a trend that has been going on for a long time, long before China became the manufacturing giant it is today. Interestingly, between the years 2008 and 2009, the US trade deficit with China dropped by more than $40 billion as Americans spent less due to the financial crisis. By 2010, Americans resumed their normal buying habits and the overall trade deficit grew back. Recessions are bad for the economy; the growth of the trade deficit in times of a healthy economy is a sign that we have disposable income to spend.

The USCBC then describes in which direction US-China trade relations should grow toward in the coming years:

“We should take several steps to get the most out of our trade relationship with China. When China cheats, we should take internationally-accepted, rules-based actions against them. Rather than build protectionist walls, we should boost American exports to China—the fastest growing market in the world—by pursuing policies that reduce the trade and market access barriers that China uses to keep out American manufactured goods, services, and agriculture products. We should take steps here at home to boost worker education and training, and improve competitiveness to ensure that America continues to have a strong economy. And, it may be time to revisit policies to help workers affected by changes to the U.S. economy find new jobs in more vibrant industries. These actions are not as easy as pointing the finger at China, but are a lot more likely to make a difference.”

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