NCPA - National Center for Policy Analysis

U.S. Trade Deficit with China

September 2, 2003

The U.S. trade deficit with China is rapidly rising -- meaning that we import more goods from China than we export to them. It is quickly becoming a political issue. Many members of Congress are warning that China needs to take action, such as raising its exchange rate, before the situation leads to protectionist legislation. However, there is less here than meets the eye, says Bruce Bartlett.

In a very short time, Chinese goods have become the largest component of America's trade deficit, rising from virtually nothing in the 1980s to $103 billion last year. Despite this imbalance, it is important to put these numbers in perspective:

  • Although China represented 22 percent of the U.S. trade deficit last year, that is down from 27.5 percent in 1997.
  • In 2001, China's total surplus was $33 billion while its surplus with the U.S. was $83 billion.
  • However, there are countries who have a trade surplus with China -- meaning that they export more to China than they import -- are Taiwan ($25 billion) and Korea ($11 billion).

This suggests that China is not running a trade policy aimed at subsidizing exports or keeping out imports, otherwise it would be running a surplus with everyone. As a recent Federal Reserve Bank of Cleveland study concluded, "China has the largest surplus of any country in its bilateral trade with the United States, not because its market is closed, but largely because it has emerged as a major global production base for labor-intensive manufactured goods," explains Bartlett. (See the figure.)

Source: Bruce Bartlett, "U.S. Trade Deficit with China," National Center for Policy Analysis, September 2, 2003.


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