The Chinese and US Trade Deficit
In today’s ever-increasingly interconnected world, understanding the consequences of global trade relationships between different countries is crucial for ensuring successful economic growth and security. For better or for worse, two of the biggest economic superpowers, China and the United States, have deep trade connections between them. As of 2018, the bilateral USD-CNY exchange rate was CNY 6.84 to the US dollar, meaning the Chinese economy has been strong compared to the United States’. But while both countries benefit from the goods trade they exchange, there is a large element of imbalance highlighted in their vast trade deficit, which has been a source of increasing tension between the two countries.
Despite the potential benefits of goods trade, the trade deficit between China and the United States has been a point of contention for many years. In 2018, the US goods trade deficit with China was $375 billion and is on the rise, along with the US overall goods trade deficit of $718 billion.1 This results from the large amount of imports that the US receives from China, which significantly surpass the amount of exports the US sends to China. These goods trade deficits are largely a result of goods imported from China such as electronics, furniture, clothing and other goods which often cost less than those produced in the United States. The low cost of these goods is mainly attributed to China’s inexpensive labor and currency manipulation, which makes many Chinese imports more affordable to US customers.
The US has responded to this large trade deficit by introducing high tariffs for goods imported from China in order to make them less attractive to individuals and businesses, encouraging them to buy products made in the US instead. These tariffs have had mixed results, with some reports indicating that these have helped to reduce the US-China trade deficit, while others indicating that imports have increased in other countries such as Vietnam, who have benefited from the rerouting of production away from China. One effect of the tariffs, however, is an increased cost of goods and slowed economic growth, particularly in areas that are more reliant on Chinese imports.
Despite the tariffs, it is clear that the Trump administration is still not satisfied with the current levels of growth and trade, and have vowed to continue to implement more restrictions. The administration has also threatened to move some US production States, such as Texas and South Carolina, to other countries like India and Brazil in order to reduce the reliance on Chinese imports and support the domestic economy.
The future of the US-China trade deficit is largely unknown. It is clear, however, that the trade deal struck by President Trump and the Chinese government with in 2019 is an important step in stabilizing the overall relationship and reducing the trade deficit. The deal reduces some imports from China while also opening new markets for US exports and increasing trade between the two countries. This could have positive effects in reducing the trade deficit, as well as help to reduce some of the tensions between the two countries.
Ultimately, the United States and China will need to continue working together in order to reduce their trade deficit, or risk further harming their relationship. As the world becomes increasingly interconnected, it is crucial to understand the economic and security implications of global trade deals, and to continually strive to create fairer, more balanced trade policies.
