How Trump’s must-do trade deficit fix attempts will affect China – Asia Times
Trump’s potential presidential candidate receives too little consideration, and not enough of it is what he ( or any other president of the United States ) needs to do.
Serious trade deficits have given the United States a disproportionately large share of global trade desire over the past 30 times. Each year, the United States sells assets, most of which are now multinational stocks, to pay off its trillion-dollar trade deficit. Some people believe that Trump places too much emphasis on the US trade deficit, or that his preferred approach ( tariffs ) may not be the best solution to the issue. However, it may stop what is not sustainable. This may alter how the United States behaves, which will have significant effects on China.
The US current account deficit of$ 800 billion is in line with Japan, China, and Germany’s trade surpluses. To be sure, China’s direct exports to the US have fallen from 8 % of GDP in 2007 to just 2.3 % last year ( in dollar terms ). China exports more to the global South now than all developed nations combined, but a large portion of its exports to the world South depend on those nations ‘ US imports.
The United States, out of the nations above, has the biggest current account deficit. The horizontal axis is the information for 2023, in billions of US dollars ,.
The U. S. net foreign investment place, the difference between foreign assets owned by Americans and U. S. property owned by foreigners, is then unfavorable$ 24 trillion, compared with unfavorable$ 18 trillion when Trump left office. However, the national debt has grown to$ 35 trillion, larger than the government’s GDP. Both trends are representative of the Biden administration’s tried borrowing strategy to promote consumption and swell imports. Under Biden, the U. S. gross international funding status has fallen at a record rate.
The US net foreign investment position ( blue line ) and the federal government debt have changed historically. System: trillion US dollars.
National users have long been the primary source of global demand. That is untenable, no matter who is in the White House. The United States has largely sold stocks to other countries over the past few years to pay off its trade deficits. In 2012, international standard institutions stopped purchasing U.S. Treasury bonds. Since 2020, most of the new national debt has been financed by U. S. economic institutions, a possible fragile design. A reduction in U. S. stocks may make U. S. property less attractive to foreigners, and U. S. economic institutions cannot compensate for a federal deficit of 6 % of GDP long.
What does this mean for China?
Seasonally adjusted comparison of China’s exports to the Global South ( blue line ) and U. S. imports from the Global South ( excluding China ) ( red line ). Unit: million USD/month.
As mentioned above, China’s direct dependence on the US market has been greatly reduced, and China’s exports have shifted to the global South, but China’s indirect dependence on the US market is still very large. The chart shows that from 2020 to 2023, China’s exports to the global South increased from about US$ 60 billion per month to US$ 120 billion per month, an astonishing increase. However, US imports from the global South also increased from about US$ 40 billion per month in 2020 to about US$ 80 billion per month in 2023. The global South’s exports to the United States affect a sizable portion of China’s exports there. Vietnam’s situation largely reflects this, with exports to the US making up a quarter of Vietnam’s own GDP, whereas the cases of Indonesia and Brazil are less well known.
the changes in each nation’s GDP over time in terms of the share of exports to the United States. The dark blue dotted line represents Vietnam, the dark green represents Brazil, and the light blue dotted line represents Indonesia.
Everything depends on how much trade is recouped by the US. If Trump imposes high tariffs, as he hinted during the campaign, prices in the United States will rise and consumption will collapse. The purpose of tariffs is to raise domestic prices to encourage domestic production. Shrinking US demand will in turn depress growth in Europe, Japan, and the global South, and China will also be affected. According to my calculations, the United States now imports most of its capital goods. If tariffs cause the cost of capital goods to go up, domestic manufacturers ‘ benefits may far outweigh the negative effects of higher prices. No matter what steps the government takes, in this situation, China’s economic growth will decline, even though domestic stimulus measures can partially address this issue.
Is it possible to lessen the United States ‘ reliance on imports without stifling economic growth? Personal consumption expenditures made up 84 % of the US GDP growth over the past ten years. There have been booms in both the consumption and investment sectors in the United States. In fact, since 2000, the capital stock of US manufacturing equipment has not changed in real terms.
As can be seen in the figure below, U.S. retail sales and imports ( both shown as deflating series ) have synchronized over the past 20 years, with each increase in consumption corresponding to an increase in imports.
Comparison of the latest U. S. retail sales and food services ( blue line, corresponding to the right vertical axis, unit: million, 1982-1984 consumer price index adjusted US dollars ) and actual goods imports ( green dashed line, corresponding to the left vertical axis, unit: billion, 2017 chained US dollars ).  , Data source: Federal Reserve Bank of St. Louis, Bureau of Economic Analysis, U. S. Department of Commerce.
Some production may be moved to the United States from abroad. Trump has repeatedly asked Chinese electric vehicle manufacturers to set up factories in the US to produce goods for the country. This is a solution to some extent, but it is very difficult to implement. Due to a lack of qualified talent, equipment, and infrastructure, the Biden administration has given semiconductor manufacturers enormous subsidies, but the result of the boom in factory construction has resulted in a 30 % increase in the cost of new industrial plants in the United States between 2022 and 2023. Trump may also demand that Chinese-produced electric vehicles in the United States use American chips.
America needs a new manufacturing culture. Once great manufacturing companies such as Boeing and Intel have failed many times, but America’s ability to adapt should not be underestimated. Before establishing a factory in Shanghai, Tesla also made cars in California. However, it will take time for American manufacturing to recover. The Federal Reserve’s industrial production index peaked at 106 in 2008 and is now only 99. America needs to resurrect its infrastructure, train talented technical workers, and create a new generation of business owners.
As President Trump suggested in 2019, China might agree to purchase more American goods, including agricultural products and hydrocarbons. Trump has argued in recent weeks that China has “failed to live up to” its commitments to purchase American goods. China would be wise to accept this offer if he makes it again. Whatever the cost of growing American soybeans is, it will be much less expensive than the other options. However, the most likely scenario is that the US will impose severe tariffs on Chinese and other imports.
The United States will continue to implement export controls on semiconductor equipment and development tools in the future because it still has a competitive advantage in some technological fields. The effectiveness of this policy is increasingly uncertain among American analysts, but Washington’s political climate does not allow for a relaxation of export controls.
China will have to adjust to the declining US demand for its manufactured goods, just like Europe and Japan. The Global South, with its 7 billion people, also has a huge demand for manufactured goods, but challenges and opportunities exist. Exports from the Global South to the United States account for a large portion of China’s export success, as previously mentioned. The Global South faces a number of challenges, including the lack of infrastructure and technology, as well as the country’s poor governance and political challenges, in order to realize its growth potential. The greater challenge facing the Global South is developing an endogenous growth model in contrast to export-driven economic growth.
To a considerable extent, China’s export industries have contributed to long-term productivity gains in its trading partners. Infrastructure in the telecommunications industry is a good illustration. According to the International Labour Organization ( ILO ), the so-called informal sector employs 60 % of the world’s workforce. These people do not pay taxes, have little access to government services, and most do not have access to banking. Mobile broadband supports the creation of businesses, formal employment, and integration into the financial system. Infrastructure in the digital sector can significantly improve productivity and governance, just like it can in the physical sector. Not all of the Belt and Road Initiative investments will yield such significant benefits, and China will need to make wise decisions about their investment priorities in the future.
Western economists urge China to resuscitate the Biden administration and increase consumption by reducing debt. This may temporarily increase output, but it is not a long-term solution. The main issue is that the world’s largest economies, including China, are lacking in young people. The only realistic solution is to boost the productivity of young people in the global South, unless current demographic trends can be reversed.
This article first appeared on The Observer ( guancha.cn ), a Chinese news and opinion website. It is republished with permission.
