Home Economy Why even a Trump victory in China talks won’t dent the trade deficit

Why even a Trump victory in China talks won’t dent the trade deficit

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         Why even a Trump victory in China talks won’t dent the trade deficit

WASHINGTON (MarketWatch) — Donald Trump lauded a 10% drop in the monthly U.S. trade deficit just days before a critical visit by the Chinese president, but it’s not because his tough talk is working: The decline was a fluke.

The U.S. trade deficit sank in February to $43.6 billion, just a month after hitting a five-year high.

“Our trade deficit with others has gone down very considerably,” Trump said Tuesday before a townhall with chief executives of prominent U.S. companies. “It’s having a big impact.”

Yet the February decline stemmed mainly from a temporary reduction in imports from China that occurs every year due to the prolonged lunar new year holiday. In January, the trade deficit surged as Chinese importers rushed to ship their goods off to the U.S. before they shut down for the roughly two-week holiday season.


         Why even a Trump victory in China talks won’t dent the trade deficit

It’s going to take a lot more than tough talk from Trump, who’s promised to slash the deficit, to reshape the U.S. trade relationship with China. Through the first two months of 2017 the U.S. trade gap with China is on track to top $300 billion for the fourth straight year.

The challenge is enormous. The U.S. trade deficit totaled $501 billion in 2016 and China accounted for about 62% of the overall gap. By contrast, China accounted for just about one-fifth of the U.S. trade deficit at the turn of the century.

The Trump administration has argued the large trade deficit is damaging to the U.S. economy and harmful to national security. The president said he expects “difficult” talks over trade this week when Xi Jinping, the Chinese president, visits his resort in Mar-a-Lago, Florida.


         Why even a Trump victory in China talks won’t dent the trade deficit

Even if the U.S. wins big concessions — other administrations have tried and failed — don’t expect the deficit with China to fall dramatically any time soon.

A big reason: The U.S. doesn’t make many of the consumer goods such as clothes, cell phones, computers, televisions and furniture that Americans crave. Not anymore.

Also read: How Chinese imports may have curbed American ingenuity

Consider “cell phones and other household goods,” a catchall category dominated by wireless devices such as iPhones, iPads and Galaxies. The U.S. imported $112 billion in such goods in 2016 — most of it from China — and only exported about $26.8 billion.

Even that is an exaggeration. Virtually none of the U.S. exports were cell phones. They fell into the “other household goods” category.

Or take televisions and stereos. The U.S. imported $18.8 billion in audio and visual equipment from China last year, but America exported just $8.6 billion to the rest of the world combined. And most of that was high-end equipment used by professionals.

Similar patterns play out in clothing, plastic and rubber goods, computers, electrical equipment, home furnishings and other manufacturing industries. Many of them have shrunk or even disappeared in the U.S. and it would take years to build them back up even under the best of circumstances.

There is hope, though.

Rising wages in China have evened the score somewhat in the cost of labor, for one thing. The U.S. also has a big and growing advantage in access to cheap energy due to a fracking revolution that has made natural gas abundant and inexpensive.

Another approach the Trump administration plans to pursue is pressuring the Chinese to remove roadblocks and open their markets more liberally to American goods. The same strategy was deployed by the U.S. with some success during trade talks with the Japanese in the 1980s and 1990s.

In 2016, the U.S. trade deficit with Japan totaled $56.3 billion — about 10% lower compared to 2000.

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