U.S.-China trade imbalance is improving18/06/2021 16
America’s trade with China, though far from even, has nonetheless moved dramatically away from its former state of imbalance. The pandemic obscured last year’s picture, but now that the oppression of the virus is lifting – in the United States as well as in China – some statistical clarity has emerged. That picture clearly shows a moderation in U.S. imports from China and an acceleration in U.S. exports to China. Some of this relative movement reflects a shift in supply chains away from Chinese sources, but also clear in the figures is Beijing’s compliance with the trade deal hammered out between it and Washington in 2019 and sealed just before the onset of the pandemic.
Supply chain shifts show clearly in the data on U.S. imports. The robust response of the American economy to the lifting of pandemic-related strictures has sucked imports into the country, as is usually the case when this country grows rapidly. According to the Commerce Department, U.S. imports of goods rose 33.7% in just the nine months between last June and this past March, the most recent month for which data are available. But goods imports from China rose only 6.9% during this time. Clearly, American business is sourcing elsewhere. Part of this change is, of course, a question of security – not so much national security as supply-line security. During the pandemic, China held back on several vital products. Though Beijing’s action in the emergency is understandable, equally understandable is how it prompted American buyers to diversify their sources, and they clearly have begun to do that.
The turn away from Chinese imports has a longer-term component as well. For some time, labor costs in China have been rising faster than in other, less developed economies – Vietnam and Indonesia in Asia, for example, and, for some products, in Latin America. This is a natural reflection of states of development. It is why costs in China were so much lower than in the United States during the initial liftoff of China’s economy. As Chinese costs have risen with Chinese development, American buyers have looked elsewhere to source especially lower-tech products, such as textiles and shoes, once the almost exclusive purview of Chinese sources. This effect is evident in the data from before the pandemic or even the 2019 “trade war” with the Trump White House. Between 2015 and 2018, for instance, all U.S. goods imports increased at an expansive 15.7% annual rate, but those from China grew only 3.1% a year.
The export side of America’s ledger captures the impact of the 2019 trade deal. According to the text of that agreement, China effectively promised to do two things. One was to stop stealing U.S. technology either directly and through Beijing’s insistence that American firms doing business in China had to have a Chinese partner and transfer to that partner all its technological and business secrets. It is, of course, difficult to measure compliance on these scores, but there are positive sings. Beijing has relaxed its insistence that American business in China have a Chinese partner. This is especially evident in finance, an area where Beijing previously had severely limited foreign access.
The second promise Beijing made in the deal was to buy more American products from a rather long list that the Commerce Department monitors monthly. On this score, the statistics speak loudly. Since the deal was signed, U.S. goods exports to China have risen at almost a 14.5% annual rate, far faster than the 0.6% yearly growth in all U.S. exports during this time and also faster than the 1.25% annual growth of U.S. exports to China during the three years prior to the deal. The recent acceleration in exports to China is still more impressive given that a lot American exports in the past consisted of component parts of goods that Chinese workers assembled and then exported back to the United States, a pattern that is ebbing with changes in U.S. sourcing.
With American purchases in China slowing and Chinese purchases of American goods accelerating, the balance of trade between the two countries has become much less lopsided. The Commerce Department puts the worst bilateral trade deficit in 2018, when China sold this country $419 billion more goods than the United States sold in China. As of the first three months of 2021, that difference was running at a $284 billion annual rate, sill a huge deficit but a correction (if that is the right word) of about a third. Whether this trend continues depends on policies coming out of Beijing and Washington as well as the inevitable ebb and flow of economic cycles – in the United States and China and just about every country in the world that competes with either this country or China. But for the time being, a major source of tension is abating.
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