A Snapshot of Imbalance
The China-US trade imbalance is as contentious as ever. In previous years this would come into the spotlight and then fade, come back and fade again. Now however this issue seems likely to remain in the spotlight continually, as the imbalance keeps growing larger, US unemployment remains high, and there is a presidential election underway in the US. In fact the leading Republican candidate, Mitt Romney, has made it his position to slap import tariffs on Chinese goods if China does not allow the Yuan to appreciate. From his point of view and that of many in America, US-China trade is very imbalanced, in China’s favor, and the Chinese government directly enables this through an artificially low exchange rate, among other measures. The rhetoric and potential consequences are getting serious.
And yes, this deficit is large: $234 Bn in 2011, through October, and set to surpass the record of $273 Bn in 2010, with China now accounting for over 40% of the total US trade deficit- up from only about 20% ten years ago. With four dollars in imports from China for every one dollar of exports to China, it is a lopsided relationship, as measured by ex-im figures. As long as the difference is so large, this issue is not going away.
When trying to put a finger on the causes and remedies to the China-US current trade imbalance it would be useful to gain an understanding of what is really driving these exports, and who is exporting. Before this, let’s first have a quick look at the trade numbers in the China-US context:
Figure 1: Snapshot of US-China Trade Imbalance (2001-2010)
Source: US Census Bureau Figures are Nominal, non-adjusted