The US trade deficit: Who is accountable?

Late on the night of Oct 1, I listened to President Donald Trump's entire speech from the Rose Garden of the White House about the new deal with Mexico and Canada. Unlike some others, I found him tolerant and patient this time, responding to journalists’ questions regarding the deal and the sexual assault accusations against his nominee for the Supreme Court, Brett Kavanaugh.

By signing the new deal, he realized one of his big campaign promises, to revamp NAFTA, the pact he said was the worst trade deal ever made. But the new deal, which is called the US, Mexico and Canada Agreement (USMCA), is a completely new brand and creates hundreds of thousands of new jobs and saves the country billions of dollars.

Despite breathing a sigh of relief after toiling negotiation with Canadian officials, Washington is tightening its seat belt to go for a series of new trade wars that the president has launched with other countries. Responding to journalists, he vividly said that the country’s old trade relations wouldn’t remain, as new deals are required with different countries, including Japan, Korea, European countries and China. He said he will impose tariffs if they do not negotiate new deals.

What appears worrisome is that the president rejuvenates his present coercive and pompous stance in respect to countries as result of the new pact with his neighbors. Responding to a journalist asking him about the right time for negotiation with China, he said the right time has not yet arrived to initiate negotiation with China. He said that he will impose a new round of tariffs on $267 billion worth of Chinese goods.

He criticized former US presidents, saying that they did nothing against China when it imposed tariffs on American goods. “China has drained almost $500 billion annually from the country and used it to build the infrastructure and bridges that we could not make during the entire century,” Trump said.

China has been enjoying a trade surplus with the US for almost two decades since joining the World Trade Organization (WTO). However, there is no unanimous agreement about the total amount. Washington talks about $350-500 billion in annual trade deficit while Beijing officials and some analysts consider the given statistic inaccurate, arguing that some important issues, such as US companies based in China that export to the US, as well as goods manufactured in other countries but assembled in China, have not been calculated.

Approving Washington’s remarks, but the question is, is China really responsible for such a trade deficit? Even more, is the current trade war with China a solution to the problem or will it further complicate the situation?

The truth is that the United States is not only running a trade deficit with China but with many other countries. It has trade deficits with Canada, Mexico, Japan, Germany, and many others, but not as big as that with China. The reason behind these deficits is not unfair play by a country, as claimed, but rather the level of consumption of the people. In other words, deficits are determined by the level of consumption revealing higher American purchasing power which, some economists believe, is a good sign of a stronger and healthier economy.

Manufacturing holds an insignificant portion of the US economy—only 12 percent. Most of the consumption goods, ranging from garments, to home appliances, to electronics and so forth, are imported from other countries. If Washington continues the current trade war, which not only harms both countries but also overshadows the entire global economy, other countries will try to replace China. So, in this spat, it would gain nothing except shifting the running trade deficit from one country to the others, unless fundamental measures are set in place to revive the country’s manufacturing sector.

Secondly, tariffs are not a good medium to boost a country’s economic power. Tariffs are an eerie replica of a tax on consumers. Presently, huge sectors of consumption goods, ranging from dishes, garments, home appliances and electronics, are imported from China. Imposing tariffs on such a wide range of products for daily use will create serious problems for American consumers. The tariffs also will instigate similar reactionary measures from the opposite site. Such tit for tat measures benefit none of the players.

It should be noticed that China consists of one-fifth of the entire global population and 14 percent of the entire global economy. Economic brinkmanship in terms of tariffs may work with small economies but it does not seem to provide results with Beijing. So, the best way for both countries is to negotiate, and China also should open its doors further as it has already resumed, which is wise decision. Without a constructive negotiation to polish the factions, both countries will get entangled in erosive and tit for tat measures.

The author was a columnist for the Daily Outlook Newspaper from 2008 to 2016, and is currently studying for a master’s degree at the Southwestern University of Finance and Economics.

The opinions expressed here are those of the writer and do not represent the views of China Daily and China Daily website.