The
U.S. trade deficit with China was USD419 billion in 2018. Trade deficit arises
because U.S. exports to China totalled USD120 billion while imports from China
(by the U.S.) was USD539 billion.
The
biggest items imported from China by the U.S. were computers and accessories,
cell phones, apparel and footwear. In many cases, U.S. manufacturers send raw
materials to China for low-cost assembly. Once shipped back to the U.S., they
are considered imports. NVIDIA Corp., Micron Technology and Intel Corp. are
especially vulnerable in a trade war. (Apple has so far “escaped”).
China’s
imports from U.S. are commercial aircraft, soybean and autos.
China’s
competitive pricing is a result of two factors:
-lower standard of living; and
-an exchange rate partially linked to
the dollar.
China
is the largest lender to the U.S. Government. As at end December 2018, U.S.
debt to China was USD1.12 trillion – 28% of total public debt owned by foreign
countries.
By
buying U.S. Treasuries, China has kept U.S. interest rates low. If China stops
buying Treasuries, interest rates could rise and throw the U.S. into a
recession. That is not in China’s interests as well.
The
fact is U.S. companies cannot compete with Chinese companies on costs.
Outsourcing by U.S. to China or India adds to U.S. unemployment but at least
U.S. companies survive with design and patent rights.
When
will this end? Only Trump knows! The U.S. has maintained a large surplus with
China in services. This totalled USD40.5 billion in 2018. It reflects largely
spending by Chinese tourists and exchange students. What if China advises
tourists to defer going to the U.S.? The U.S. tourism industry could be hit by
a USD18 billion impact.
2020
then could be a defining moment for Trump, U.S. economy and the world.
References:
1. Why the U.S-China Trade Deficit is so Huge:
Here’s all the stuff America imports, Jeffrey Bartash, May 14, 2019,
MarketWatch
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