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US Trade Deficit With China and Why It's So High The U.S. trade deficit with China was $419 billion in 2018. The trade deficit exists because U.S. exports to China were only $120 billion while imports from China were $540 billion. The biggest categories of U.S. imports from China were computers and accessories, cell phones, and apparel and footwear. A lot of these imports are from U.S. manufacturers that send raw materials to China for low-cost assembly. Once shipped back to the United States, they are considered imports. China's biggest imports from America are commercial aircraft, soybeans, and autos. In 2018, China canceled its soybean imports after President Trump started a trade war. He imposed tariffs on Chinese steel exports and other goods. Current Trade Deficit From January 2018 to July 2018, the United States exported a total of $74.3 billion in goods to China. During that same timeframe, the U.S. imported $296.8 billion, according to the U.S. Census Bureau. As a result, the total trade deficit with China is $222.6 billion. A monthly breakdown is in the chart. Causes China can produce many consumer goods at lower costs than other countries can. Americans, of course, want these goods for the lowest prices. How does China keep prices so low? Most economists agree that China's competitive pricing is a result of two factors: 1. A lower standard of living, which allows companies in China to pay lower wages to workers. 2. An exchange rate that is partially fixed to the dollar. If the United States implemented trade protectionism, U.S. consumers would have to pay high prices for their "Made in America" goods. It’s unlikely that the trade deficit will change. Most people would rather pay as little as possible for computers, electronics, and clothing, even if it means other Americans lose their jobs. China is the world's largest economy. It also has the world's biggest population. It must divide its production among almost 1.4 billion residents. A common way to measure the standard of living is gross domestic product per capita. In 20, China’s GDP per capita was $,600. China's leaders are desperately trying to get the economy to grow faster to raise the country’s living standards. They remember Mao's Cultural Revolution all too well. They know that the Chinese people won't accept a lower standard of living forever. China sets the value of its currency, the yuan, to equal the value of a basket of currencies that includes the dollar. In other words, China pegs its currency to the dollar using a modified fixed exchange rate. When the dollar loses value, China buys dollars through U.S. Treasurys to support it. In 20, China began relaxing its peg. It wants market forces to have a greater impact on the yuan's value. As a result, the dollar to yuan conversion has been more volatile since then. China's influence on the dollar remains substantial. Effect China must buy so many U.S. Treasury notes that it is the largest lender to the U.S. government. Japan is the second largest. As of December 2018, the U.S. debt to China was $1.12 trillion. That's 28% of the total public debt owned by foreign countries. Many are concerned that this gives China political leverage over U.S. fiscal policy. They worry about what would happen if China started selling its Treasury holdings. It would also be disastrous if China merely cut back on its Treasury purchases. Why are they so worried? By buying Treasurys, China helped keep U.S. interest rates low. If China were to stop buying Treasurys, interest rates would rise. That could throw the United States into a recession. But this wouldn’t be in China's best interests, as U.S. shoppers would buy fewer Chinese exports. In fact, China is buying almost as many Treasurys as ever. U.S. companies that can't compete with cheap Chinese goods must either lower their costs or go out of business. Many businesses reduce their costs by outsourcing jobs to China or India. Outsourcing adds to U.S. unemployment. Other industries have just dried up. U.S. manufacturing, as measured by the number of jobs, declined 34% between 1998 and 2010. As these industries declined, so has U.S. competitiveness in the global marketplace. What's Being Done President Trump promised to lower the trade deficit with China. On March 1, 2018, he announced he would impose a 25% tariff on steel imports and a 10% tariff on aluminum. On July 6, 2018, Trump's tariffs went into effect for $34 billion of Chinese imports. China canceled all import contracts for soybeans. Trump's tariffs have raised the costs of imported steel, most of which is from China. Trump's move comes a month after he imposed tariffs and quotas on imported solar panels and washing machines. China has become a global leader in solar panel production. The tariffs depressed the stock market when they were announced. The Trump administration is developing further anti-China protectionist measures, including more tariffs. It wants China to remove requirements that U.S. companies transfer technology to Chinese firms. China requires companies to do this to gain access to its market. Trump also asked China to do more to raise its currency. He claims that China artificially undervalues the yuan by % to 40%. That was true in 2000. But former Treasury Secretary Hank Paulson initiated the U.S.-China Strategic Economic Dialogue in 2006. He convinced the People's Bank of China to strengthen the yuan's value against the dollar. It increased by 2% to 3% annually between 2000 and 2013. Former U.S. Treasury Secretary Jack Lew continued the dialogue during the Obama administration. The Trump administration continued the talks until they stalled in July 20. The dollar strengthened 25% between 2013 and 20. It took the Chinese yuan up with it. China had to lower costs even more to compete with Southeast Asian companies. The PBOC tried unpegging the yuan from the dollar in 20. The yuan immediately plummeted. That indicated that the yuan was overvalued. If the yuan were undervalued, as Trump claims, it would have risen instead.  Honesty is the best policy. |
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American companies such as Nike, Adidas, Apple, .... went overseas to China because our labor in USA are too expensive to compete with other countries. After Chinese made clothing, shoes, iPhones, ... the products ship back to USA and sell to the world. This ship back is an "import", so when Trump increases the import tariff will hurt Americans to pay more. China retaliation to decrease purchasing our soil bean, orange, ... agricultural goods and seafood, American farmers and fisherman will be hurt first. I read CNN news said many farmers already suicide. Today Trump also announced he wants to increase tariffs 5% on Mexico and gave them only 10 days time to decrease illegal immigrants. July will be 10% tariffs, August 15%, and so on till 25% if Mexican government won't help with illegal immigrants enter to USA. The stock market has plummeted ever since May 5, 2019 Trump tariff hike on China. The things are getting worse. Honesty is the best policy.
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I have never thought China is the biggest economy. I don't know how you got that idea. I even don't want them to be the 2nd biggest economy. I have mentioned many times that China's decade "Cultural Revolution" that lag behind the rest of world for 30 years, so they tried to catch-up. They overly built million buildings to show off their GDP Growth percentage to 7% or 8%. They had been very poor, they had to catch up. I've never said they are the biggest economy country. USA is the biggest economy country and that is a fact. Honesty is the best policy.
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But China thinks they are big enough to challenge USA. Because China has 28% of USA debt.
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I have real estate investment that made better and stable profit. However, I also have stock investment that keeps me on my toes. I am a risk-taker. Stock market keep me alert on current event and news. You can't know which way the wind will blow. You never know Boeing will have 2 airplanes crashed or what words will come out of Trump's mouth. Anything can happen that shake the stock market. Sometimes, the unexpected news that makes stock plunged like someone punch you in the stomach. Honesty is the best policy.
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It is not just a bit of nervous. The two stock markets (USA and China) reaction are "tremendously" plummeted. China stock market lost 8%, USA had 5% correction. I am holding Amazon stock and it plunged from $1,964.40 to $1,815.75 = $148.65 per share evaporated. Google dropped from $1,296.97 to $1121.40 = $175.54 per share panic selling. Even Amazon and Google are non-exist in China. You probably not a stock investor, you don't know the feeling. Honesty is the best policy.
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In USA, we have "freedom of speech", so we can criticize U.S. president, but not in China. Be careful, you can't criticize Xi. I remember when my mom 1st time came to USA in 1974 for travel a month with her youngest sister family. When my mom returned to Taiwan, she told me that she saw a naked male body lied on floor with Kissinger head on a Freeway billboard. Mr. Kissinger was a "Secretary of States" at the time. My mom said "USA had too much freedom". I felt the same. Honesty is the best policy.
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I hope Chinese won't boycott American restaurants, such as McDonald, Starbucks, KFC, Pizza Hut, .... to Home Depot, ... that those chain stores already arrived in China. God forbids Chinese retaliation on those brand name companies in China. How Trump to deal with Xi? Honesty is the best policy.
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The U.S. economy is 50% larger than #2 China. Honesty is the best policy.
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The U.S. economy is 50% larger than #2 China.
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Nobody likes "Trade War", neither USA nor China. In USA, we have "presidential election" in 2020, Trump wants to be reelected for next term (4 more years). But Mr. Xi is an Emperor in China, he doesn't need to worry about his term and there is no bipartisan to "checks and balances" Xi. So, Mr. Xi can do whatever he wants. It is a fact, not a fake news.  Honesty is the best policy.
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If you have followed my multiple blogs, you should know I am NEITHER a Trump fan NOR a Xi fan. The reason I post this blog is just providing a real fact based on data. Those facts might sound boring for some bloggers but the facts are very important to each of us, no matter you are an American or a Chinese. It has been long time since USA had established diplomatic relationship with China in 1980, USA had "trade deficit" against China. No matter the U.S. presidents are Democrat or Republican, the "trade deficit" has been there. We know China has the largest population in the world (even they had forced on "one baby" policy for years). I saw on TV in 1983 in USA that China opened "gold", "jewelry", "engagement ring", ... for the Chinese public for the 1st time since Cultural Revolution. The line was circled very long to buy the jewelry, they were fighting to buy jewelry because young couple wanted to get married. The U.S. news journalists said "the Chinese fought for jewelry like crazy". USA thought China had a big consumer market. However, the buying frenzy was gradually decreased after few months. During "Cultural Revolution" Chinese people only allowed to wear black or blue colors clothing. Then they wore other colorful dresses as their government released the ban. In the above chart, you can see U.S. imported $54 billion in apparel and footwear. Please don't misunderstand that Chinese like to wear American style fashion and they purchased dresses from USA. No, you misunderstood it. According to the CNBC expert said American clothing/ shoe companies use Chinese cheap labor to make American designer fashion to reduce the cost and ship back to USA and sell to Americans (not sell to Chinese). When those apparel and footwear ship back, it is called "imports". Now Trump wants to increase tariffs from 10% to 25%, American consumers will get hurt first. Nike, Adidas, ... realized their cost will be higher and eventually put on American consumers. Not only apparel and footwear, but sunglasses, bicycles, toys, small appliance, .... prices will go higher once tariffs raise to 25%. Nike immediately switched out of China to Vietnam, then found out Vietnamese factory for apparel and shoe actually owned by Chinese. So, Nike has to find another country to make fashion cloth and shoes. From the chart above, you can see China buy aircraft and autos from USA because they can't make those large items. You can see China purchased $12 billion in soybeans and other agriculture and seafood products. So, now China wants to retaliate USA and reduce or not buying soybeans from USA. It is called "tit for tat" 針鋒相對; 一報還一報. Boeing had bad news that two planes crashed within 5 months that really came the most critical time. Mr. Xi went to Europe and purchased the same amount of aircraft from French "Air Bus" with good excuses that Boeing can't make safe planes 737 Max8. It is a "double whammy"雙重災難；禍不單行 for Boeing, the top #1 U.S. export manufacturer.  Apple has a big factory in China making iPhone, iPad, ... and ship back to USA to sell to Americans and the world. This ship back is an "import". So, when Trump announced to tariff hike, make Apple stock plummeted. Apple provided so many jobs for Chinese. However, Chinese buy cheaper cell phone in China. Trump wants to "Made in USA", "Buy in USA". It is called "Repatriation"遣送回國；調回本國. It sounded very good for USA. But can it be done??? No, it can't. Because American Labor Law provides the employees can have 15 minutes breaks every 4 hours, lunch break for 30 minutes, vacation 2 weeks per year with pay, the labor association protect those workers. That is why many companies including Apple, Nike, Adidas, ... had to cut cost by using foreign labors. Trump blames many previous presidents didn't balance the "Export" and "Import" with China. Trump said he is only president to do something about it. So, he wants to raise the tariffs on China in particular. Ever since Trump announced the tariff hike on Cinco de Mayo Sunday (May 5th) by tweeting, the stock market in China and USA both plummeted. This is complicated to balance "export" and "import". Trump signed "Executive Order" targeting Huawei spying and espionage. He wants Europe to join with USA to ban Huawei. Why presidents Obama, Clinton, Bush, ... didn't stir up the problems of "export/ import" that because they knew the problems are too complicated. I have spent much of my time to analyze the problems in between USA and China. Hope you will like my opinions. Honesty is the best policy.
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