As official data showed that the US overall trade deficit has risen to a record high by 2021, US politicians and media quickly grasped this new excuse to once again blame China for the increase in red ink.
By usually hyping the subject up for its trade deficit with China, the US revealed its unwillingness to scrutinize the underlying structural problems that led to its constant trade gap – with not only the Asian country but also a number of other economies.
The changing US economic structure, the world domination of the dollar, and the habit of US households spending more than they save is what is actually driving up the US trade deficit. However, a scapegoat for a particular bilateral trade relationship is logically flawed.
Due to globalization and the impact of its own economic policies, the United States has experienced a continued decline in its manufacturing industry over the past few decades, along with the consistent expansion of its service sector.
Its uneven recovery following the COVID-19 pandemic is also exacerbating the situation, as rising demand combined with a delayed supply has inevitably pumped up imports of consumer goods. Now that the US President Joe Biden administration’s infrastructure law has been signed into law, US demand for steel and chemical products is also expected to increase further.
Meanwhile, export controls, a strict restriction imposed by U.S. law, hamper the ability of U.S. high-tech companies to sell their technologies and products overseas.
Since the previous US administration caused trade friction with China, several Chinese companies have been placed on the so-called “entity list” of export controls, although the move targeting the Chinese high-tech sector has only caught the US in the difficult situation of skyrocketing trade deficits. Therefore, no one should be blamed other than Washington itself for it.
Those who narrowly focus on China’s surplus have apparently ignored the dominance of the dollar in the world, an equally important driver of the US trade deficit.
As the world’s primary reserve currency, the dollar has enabled the United States to import international goods and services at relatively lower prices. Of course, one of the results is persistently a certain level of trade deficit.
To put it bluntly, there is no such thing as a free lunch, even for the economic superpower. Washington can not expect to have a sovereign currency, the most widely used in the world, but not face the consequences of its over-consumption.
In the early 1970s, the decoupling of the dollar from gold, known as the “Nixon shock” that marked the end of the Bretton Wood system that had governed the post-war global financial system, further freed the dollar from obstacles that would otherwise have set limitations on its global power.
Moreover, the subsequent decades of monetary easing and radical deregulation in the financial arena have created asset bubbles and stimulated excessive spending and relentless lending, which in turn caused the US trade deficit to rise again and again.
While demand from Chinese companies and consumers for Chinese goods has risen sharply during the pandemic, the US government just turned a blind eye to these reasonable needs and some politicians continued to distort trade relations between the US and China in a counterproductive way.
A dazzlingly clear fact that Washington avoids talking about is that China has become a major source of U.S. profits on trade in services. According to the Department of Commerce, the total U.S. surplus of service trade in 2021 exceeded $ 230 billion, and its service trade with China has long held a surplus.
Last week, Chinese Foreign Ministry spokesman Zhao Lijian reaffirmed that China always maintains that the two sides must resolve the issues in their economic and trade relations properly in a spirit of mutual respect and consultation on an equal footing.
Threats and pressure based on one’s one-sided interests will not help solve the problems, but will only undermine the mutual trust and atmosphere of dialogue and negotiation, he warned.
For the sake of its own good, the United States should abandon its hysteria over the trade deficit with China, stop bullying its trading partner and meet China halfway to get the bilateral trade relationship back on track.