How Will the US Trade Imbalance with China Hurt the US Economy?

What Happened: The US trade imbalance with China continues to grow. In May, China bought $13.11 billion worth of goods from the US — a number significantly below the $13.94 billion worth of goods bought during the previous month, according to customs data from Wind Information presented by CNBC. 

Equally important, China’s imports from other countries grew at their fastest pace in a decade — up 51.1 percent — while the growth of imports from the US dropped to 41 percent in May over a year ago versus a 52-percent drop from the prior month. 

Exports to the US rose to $44.89 billion in May, up from $42.05 billion in April. But the pace of growth declined to 21 percent, year-on-year, from 31 percent in April, CNBC reports.

The Jing Take: CNBC rightfully points out that the US remains China’s largest trading partner on a single-country basis. 

Yet, the pandemic has helped China secure its position as the world’s top trading partner. According to AFP, China has surpassed the US to become the EU’s biggest trading partner.

In short, the current strategic rivalry between China and the US hasn’t hampered trade relations. As such, the odd situation of “political coldness but economic heat” won’t be changing anytime soon, said Tian Yun, former vice director of the Beijing Economic Operation Association, to The Global Times.

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The current situation works more in China’s favor than the US. As the trade deficit grows, American companies and the national manufacturing sector are being penalized by these unfavorable circumstances. For example, Americans employed in textile manufacturing are having their jobs sent abroad. And as costs rise, American brands can’t keep up anymore with Chinese-made goods; thus, they are forced to cut jobs domestically and move their production abroad. Small and medium enterprises (SMEs) are even going bankrupt pushing the national bankruptcy rates higher. A recent report by Robert E. Scott and Zane Mokhiber shows that the trade deficit with China eliminated or displaced 3.7 million American jobs between 2001 and 2018.

Second, the decline in manufacturing employment has exacerbated wage inequality and brought a drop in wages in different regions and states. Research by the Coalition for a Prosperous America (CPA) highlights how downsized manufacturing workers suffered a 19 percent drop on average of their inflation-adjusted incomes by 2018.

In theory, there’s also the risk of devaluation (although that doesn’t truly apply to the US-China balance of imports and exports right now). But in the long run, the US has to find innovative ways to restore its competitiveness.

From a retail perspective, however, US consumers benefit from having access to cheaper goods from China. As these “cheap” goods enter the US market, they put pressure on American manufacturers to improve quality and cut their manufacturing costs to remain competitive — if possible. 

The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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