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  • US-China Trade Numbers Reveal Political Risk

    Our trade deficit with China rose 20 percent to a record $273 billion last year, according to figures just released by the Commerce Department. For political reasons, this is a depressing, dangerous result.

    American exports to the PRC soared 32 percent in 2010, which is a welcome development. It is nonetheless depressing because American imports from the PRC rose 23 percent, yet the trade gap still widened.Our exports are so much smaller than our imports that they fall further behind when growing noticeably faster. With imports growing 23 percent, our exports would have had to double last year for the trade deficit just to hold steady.

    What may be politically dangerous is what lies beneath the deficit. The mix of products in trade with China will further inflame debate. The top American exports are reasonable. Rising global and Chinese food prices put American agriculture in high demand, benefiting soybean and cotton growers in particular. This will continue unless China closes its agriculture markets.

    It was not a particularly good year for aircraft sales, but autos were strong, as were other advanced products. Neither side of the Pacific is happy about the volume of American scrap headed to the PRC, a function of massive overproduction by Chinese industry.

    What we import from China will prove more troublesome for the Congress. China makes things the U.S. no longer makes in large amounts, such as toys and footwear. But they also make things we do make, such as communications equipment and printed circuits. The U.S. and PRC are both part of the global production chain in advanced goods, where the U.S. provides inputs such as semiconductors and measuring devices, which China assembles into computers and audio–visual equipment.

    The problem is not dollar totals; those just stem from the way we count trade. We count China as gaining all the benefit from the final product it exports when it only benefits from part of it. In computers, for example, China imports the components and exports the machines, but its export total includes the whole value of a computer, though all that has been done in China is assembly.

    The real problem is jobs. It’s one thing to talk about clothing and furniture jobs in China. If those jobs weren’t in China, they’d be in Vietnam, Mexico, or Bangladesh. But when China also gains jobs in computers and telecommunications, even if they are assembly jobs only, that makes for a powerful political issue in the U.S.

    This isn’t an election year, so Sino–American trade tension will remain relatively low. But the numbers set the stage for serious political risk in 2012. The totals make it clear how difficult it is to close the trade gap. The industry breakdowns seem to show the PRC encroaching on our turf. The situation is more complicated than that, but people running for office are not known for dealing well with complications.

    Posted in International [slideshow_deploy]

    2 Responses to US-China Trade Numbers Reveal Political Risk

    1. Pingback: » Financial News Update – 02/15/11 NoisyRoom.net: The Progressive Hunter

    2. Pingback: Morning Bell: Obama Budget Doubles Down on Deficit Spending Failure | The Foundry: Conservative Policy News.

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