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What Trade War? US Trade Deficit With China Hits Record High $323.32 Billion Last Year



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Jan 15 2019
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One of the important goals President Donald Trump decided to launch a trade war with China last year was to narrow the trade deficit gap. He promised during his presidential campaign and after he entered the White House that he would seek to reduce massive U.S. trade deficits with China. However, based on the latest data unleashed, things have gotten worse.

 

China’s surplus with the U.S. grew 17% from a year ago to hit US$323.32 billion in 2018 – the highest ever – dating back to 2006. According to data from Beijing, China’s trade surplus with the U.S. was US$275.81 billion a year earlier in 2017. However, the actual figure could be much bigger because China sometimes would exclude goods that end up in the U.S. via other countries.

 

Apparently, the Chinese exports to the U.S. rose 11.3% to US$478.4 billion in 2018, while imports from the U.S. rose a negligible 0.7% over the same period. Overall, it appears that the Chinese companies somehow find it a lot easier to source substitutes for American products than the United States does in replacing Chinese imports.

China-United States Trade War - Chess Pieces

Hence, in terms of trade deficits with China, the U.S. is losing the trade war, for the financial year 2018. Nevertheless, the tensions between the world’s two biggest economies have started to impact China. The Middle Kingdom’s overall December exports unexpectedly fell 4.4% to US$221.2 billion from a year earlier, the biggest monthly drop in two years, suggesting a slowing growth.

 

In the same breath, China’s imports also unexpectedly dropped to US$164.2 billion in December – falling 7.6% – the biggest decline since July 2016. Analysts had expected a 2% rise in export and 4.5% rise in import for the month of December. The drops in both export and import are clearly a bad sign for the Chinese economy going forward, pointing to deepening cracks.

 

Still, Beijing managed to register a trade surplus of US$57.06 billion for the same period of time – the largest trade surplus since December 2015. The concerns over the economic slowdown in China have the world stock markets dancing to the tune of it. The Dow Jones Industrial Average (DJIA) futures would tumble whenever bad news about the Chinese economy exploded.

Trump Trade War With China - Chinese Guards of Honour

The truth is, President Trump got nowhere with China on his trade war. The U.S. could not hurt China without hurting itself. The most Trump could do is keep firing off tweets about China being hurt by his trade war, or about “huge progress” on trade talks with the Chinese. Trump knew better than anybody that there has been no progress at all with his trade negotiations.

 

Sure, China’s economy may take a beating this year. Its growth rate might slow to 6%, or even 5%. However, the economy will still be growing. And as long as President Xi Jinping can manage the country’s inflation, which reportedly was at 1.9% in December, as well as the people’s real purchasing power, China can fight a long trade war with the U.S.

 

China is a net capital exporter to the tune of 1.2% of its GDP. Thanks to positive trade balance, it does not need to import foreign savings to finance its public debt and budget deficits. Unlike Greece or Italy, Beijing has enough firepower to manage its internal debt. Despite what Trump wants the public to believe, the Chinese economy is not in bad shape, at least not yet.

China President Xi Jinping - Toast a Drink

Trump now realizes that China won’t be intimidated, let alone that a trade war can be easily won. China has never wanted a trade war. But if threatened, the Chinese would gladly fight the war, as they have repeatedly assured previously. Even if the U.S. plans to divert attention and challenges China in the disputed South China Sea, it’s safe to presume President Xi is not bluffing with his military retaliation.

 

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The Chinese are more confident now than ever, a mainland Chinese friend told me they believe China will overtake USA as the world most powerful country in the world in the next 20 years.

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