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【CGTN】 How can the US-China trade imbalance be explained?

Friday,Jul 27, 2018

Editor’s note: The article is taken from a seminar report given by the Center for China and Globalization (CCG) in Beijing.


Back when the Xi-Trump Mar-a-Lago Summit took place and the Initial Actions of the US-China Economic Cooperation 100-Day Plan for Trump’s visit to China were formulated, optimistic expectations for Sino-US trade relations were the majority opinion.

Since the second half of 2017, however, trade tension between the two powers has gradually escalated, especially since the implementation of additional tariffs by the US on 34 billion US dollars’ worth of Chinese imports on July 6, 2018.

And, based on the fact that the US has threatened to slap a further round of tariffs on 200 billion US dollars’ worth of Chinese goods, it seems that the so-called China-US trade imbalance has given the Trump administration an excuse for triggering a trade war.

When taking an objective stance, it is impossible not to notice that the structural defects caused by rapid growth in the global economy has contributed to the imbalance. Specifically, the trade deficit results from the dollar-dominating the international currency system.

Because of its status as an international currency, the creation of a large amount of US-dollar-bills will inevitably lead to a massive purchase of products globally. The flow of US dollars becomes the method for the public to support the international economic and trade system.

A US dollar bill. / VCG Photo


As outlined in Triffin’s Dilemma, once a country’s currency becomes the internationally-dominant international reserve currency, there will be a trade deficit, and if the US does not maintain it, the dollar’s liquidity will dry up, negatively impacting global trade.

Furthermore, the consistent decline of American household savings and soaring national debt has widened the balance of trade. According to statistics from the World Bank, US household savings decreased from 8 percent in the 1990s to a negative, below-zero percentage in 2016.

In addition, traditional statistical methods have seriously miscalculated the US-China trade deficit. The Trump administration has always viewed the 375.2 billion US dollar trade deficit as the cause of the trade war, but is it really?

According to Bloomberg, Apple Inc. owes up to 250 billion US dollars in cash and securities overseas. After the US Congress passed the tax reform bill, the company announced that it will pay for a one-time 38 billion US dollar overseas profit tax rate and withdraw 245.16 billion US dollars from overseas holdings.

The Apple logo at the Apple store in New York. /VCG Photo


Apple plans to invest more than 350 billion US dollars in the US over the next five years, adding 20,000 jobs. This means money earned in China has been put in the US’ pocket.

At least three million tourists visit the US and more than 500 thousand overseas students study there annually, contributing at least 30 billion and 40 billion US dollars to the domestic economy, respectively.

Using this as an example, it can be said that in the global value chain, the trade surplus is reflected in China, but the interest surplus is reflected in the United States.

Therefore, the trade war needs to be stopped as soon as possible as the world economy will be severely damaged if it continues. It will be a "lose-lose" situation for everyone..

Both China and the US are facing a series of structural challenges, and both countries need to accelerate restructuring of their own economies, building on the foundation of domestic reforms to improve the trade imbalance together.

Moreover, the way that Sino-US trade is measured should be reformed and updated, particularly to account for global value chains. This will more accurately and fairly quantify the value of the trade relationship between both countries.


July 16, 2018: A container ship is shown at a port in Long Beach, California, US / VCG Photo


Thirdly, China and the US should work to expand bilateral trade in services. That includes tourism, education, talent exchanges, international investment, infrastructure construction, and e-commerce.

Besides for that, all parties should work to restore and strengthen the role of economic ties as the center of the bilateral relationship. This entails working through American multinationals, trade associations, think tanks and lobby groups to help overcome the current deadlock in communication, and return to using dialogue and negotiation.

Last but not least, all appeals and consultation should be carried out under the WTO framework. China could file appeals against the US and undertake negotiations under the WTO, providing a space for productive discussion.


From CGTN,2018-7-25

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