Today, China engages in international trade on an unprecedented scale, rapidly churning out inexpensive exports and housing enumerable manufacturing plants.
The ongoing trade war is one of the most readily identifiable topics surrounding U.S.-China relations. Mass media’s underlying political bias and proclivity to sensationalize topical issues have resulted in politically-skewed coverage. It’s likely many Americans still instinctively relate the trade war with the Trump administration’s incendiary rhetoric and rigid policies. In actuality, the topic, and its potential mitigation strategies, remain a distinctly non-partisan issue. A report from the Pew Research Center claims that, “Republicans and Democrats largely agree in their assessments of how China’s growing economy […] will affect the U.S.” To this point, within the last month, the Senate has passed a $250 billion bipartisan technology and manufacturing bill aimed at combating China’s economic growth.
A trade deficit occurs when the cost of a country’s imports exceeds the cost of its exports. In the late 1990s, China’s economy saw a dramatic growth in manufacturing exports, resulting in an American trade deficit of $34 billion on average. Following China’s admittance into the WTO in 2001, the trade deficit rose to $202 billion in 2005, and then $273 billion in 2020. In 2020, the United States imported $435 billion in goods and services from China and exported approximately $124 billion, leaving an outstanding deficit of approximately $310 billion in goods and services.
Trade Deficit and the Exchange Rates
A fixed or “pegged” exchange rate is when the value of a country’s currency is inseparably tied to the value of another widely-used commodity or currency. China manipulates its currency by deflating its worth by pegging it to a value less than it would trade for in a free market to gain advantages over trading partners. Many analysts proclaim that the nation’s currency is “significantly undervalued vis-à-vis the U.S. dollar.” This causes exports to the United States to become inexpensive while United States imports to China are comparably more expensive. China’s “massive and sustained currency manipulation from 2000 to 2010…[widended] the trade deficit to historic levels.”
Impact on the US Economy
There is a current debate among economists about whether the trade deficit with China has led to significant job loss in the United States. A recent EPI report stated that there is a correlation between the ever-growing trade deficit and a substantial loss in manufacturing employment. This report claims that “the growth of the U.S. trade deficit with China between 2001 and 2018 was responsible for the loss of 3.7 U.S. million jobs.” However, many economists have challenged this argument, attributing employment loss to “automation, productivity increases, and demand shifts from goods and services.” Further, economists have outrightly denounced the recent administration’s fixation on the widening trade deficit, claiming that, “the trade deficit is a terrible metric for judging economic policy.”
