Time for US to abandon China trade deficit rhetoric

Washington: China’s current account surplus in 2018 narrowed further, as its external position was assessed to be “in line with fundamentals and desirable policies,” the International Monetary Fund (IMF) has said in a report.

The IMF’s newly released annual External Sector Report piles up proof that U.S. accusation of China’s massive trade surplus is ill-intentioned and misleading.

China’s current account surplus continued its decline in 2018, reaching 0.4 percent of GDP of the year, down

substantially relative to its peak of about 10 percent of GDP in 2017, and reflecting progress in rebalancing, according to the report.

Just like the IMF, many economists have dismissed the notion that bilateral trade imbalance matters, but stressed the need to focus on a country’s overall trade balance with all trading partners, an argument repeatedly ignored by the White House, which has been pressing China to cut the trade surplus, as one of the objectives in its unilaterally initiated trade row.

Moreover, the IMF said that America’s persistent deficit with its trading partners resulted from its macroeconomic policy, urging it to adopt “fiscal consolidation” and implement “structural policies” to address external imbalances, instead of resorting to “distorted” trade actions.

U.S. attempt to reduce its trade deficit with China has been counterproductive, as data from the U.S. Commerce Department shows that in spite of the additional tariffs, U.S. goods trade deficit with China expanded by 44 billion U.S. dollars in 2018 from the previous year.

From a broader perspective, IMF chief economist Gita Gopinath also noted that trade actions and tensions so far have not significantly affected global current account imbalances, as trade has been diverted to othercountries with lower or no tariffs.

Latest data confirmed her conclusion, showing that even though the United States imported several billions of dollars less in goods from China from January through May this year than in the same period of 2018, it has imported more from other partners, with its overall trade deficit in goods going up by 6.6 billion dollars.

“The protection aimed at China is not likely to improve the overall U.S. trade deficit because value chains

relocate to other partners and the U.S. dollar appreciates,” said David Dollar, an economist and senior fellow at the Brookings Institution, who has argued that Washington’s trade row strategy against China is “a poor one” and has already “failed.”

Such viewpoint, however, has fallen upon deaf ears in the White House, as some U.S. China hawks continue to

tout the rhetoric of large trade deficit, accusing China of taking advantage of the United States in bilateral

trade relationship and portraying itself as “loser” in a zero-sum game.

In regard to the so-called “unbalanced” trade relationship, there should be no reason to worry, according to numerous economists, including Robert Z. Lawrence, a nonresident senior fellow at the Peterson Institute for International Economics.

“Trade deficits are not necessarily bad, do not necessarily cost jobs or reduce growth, and are not a measure of whether foreign trade policies or agreements with other countries are fair or unfair,” Lawrence has said in a report published last year.

The truth is China-U.S. trade relationship has always been mutually beneficial, and will continue to be so. Bilateral goods trade surged from 2.5 billion dollars in 1979, when the two countries established diplomatic

ties, to 633.5 billion dollars in 2018, and trade in services exceeded 125 billion dollars last year, according to the Chinese Ministry of Commerce.

China’s surplus came mainly from labor-intensive products, and the country saw deficits for products

including aircraft, integrated circuits, automobiles and agricultural products, as well as in services trade, showing both countries have capitalized on their respective industrial advantages, China’s Ministry of

Commerce said in a recent research report.

Considering China’s goods trade surplus is generated by foreign firms, the surplus from processing trade and trade deficit in services, the overall U.S. trade deficit to the Asian country is actually much smaller than Washington has claimed, the report added.

The United States has in fact gained greatly from bilateral economic and trade cooperation with China, as exports to the world’s second largest economy have supported U.S. jobs, and imports of high-quality products

at affordable prices have contributed to its comparatively low inflation and reduction in production costs, among other benefits.

It’s time for Washington to abandon its misleading rhetoric and seek to improve bilateral trade relations based on facts and facts only. Recklessly blaming others might sound tempting, but it leads nowhere in terms of

resolving the real issue at the cost of sabotaging bilateral relationship.