Trade Gap With China Is Now Biggest for U.S.
China eclipsed Japan in June to become the nation boasting the biggest trade surplus with the United States, a symbolically important event that demonstrates the growing influence and threat posed by China on the world stage.
China’s inexorable move to the top of the list--stemming from its rapid economic growth, the U.S. appetite for inexpensive goods and the limited access China gives other nations to its vast market--makes it officially the No. 1 trade “problem” for the United States.
As such, the transition is sure to heighten the concerns of U.S. politicians and others worried about losing jobs to a country known for low-wage competition, product piracy and human rights abuses.
For Japan, the June trade figures announced Tuesday by the Commerce Department marked the first time in two decades that the longtime, often bitter U.S. trade rival has occupied the No. 2 position among nations enjoying the upper hand in trade with the United States.
“It’s a symbolic transition point,” said Douglas Paal, an Asia expert formerly on staff with the National Security Council and now associated with the Asia Pacific Policy Center in Washington.
It is a transition that has been long expected, given China’s sheer size, double-digit growth and increasing clout in the U.S. economy. It has become a major supplier of textiles, apparel and light manufactured goods and a consumer of U.S. airplanes, agricultural commodities and technology.
But the importance of trade deficits is hotly debated. The trade data do not reflect the complexity of a world economy in which Chinese workers manufacture McDonnell Douglas airplanes and Motorola pagers, using U.S. brainpower as well as parts. Nor do the figures show trade in services such as accounting, law and technical consulting that are a huge growth market for U.S. companies.
Trade advocates caution against turning China into the next trade “villain,” citing the benefits associated with the growing U.S.-China interdependence and particularly the growth in U.S. exports--which remain one of the bright spots in the U.S. economy.
“While the trade deficit is certainly going to be an issue, the fact is our exports to China have doubled over the last five years and continue to rise,” said Myron Brilliant, director of trade policy for the U.S. Chamber of Commerce in Washington. “We’re projecting $13.6 billion worth of exports to China this year.”
Despite the attention paid to the fast-growing deficit with China, the overall U.S. trade deficit fell in June to $8.11 billion, a 23.1% drop from the revised May figure of $10.55 billion. A decline in Americans’ purchase of imported cars and computers was a key factor in the shrinking of the deficit.
And while the June deficit with Japan grew slightly--to $3.24 billion, a 3.6% increase from May--Japan’s overall deficit with the United States has shrunk significantly over the last year.
“I have trouble getting upset about the deficit when we have full employment,” said Cynthia Latta, a senior financial economist with DRI/McGraw-Hill in Boston.
The imbalance with China grew 8.8%, to $3.33 billion in June, while China’s purchases from the United States--which have generally been on the rise--fell for the fourth consecutive month, reaching their lowest level since the beginning of 1995.
The China trade figures certainly offer Republicans a campaign target, even though Bob Dole, the party’s presidential nominee, has generally supported President Clinton’s major trade initiatives.
Of particular concern is human rights. The issue will certainly resurface next spring during the annual debate over renewal of China’s most-favored-nation trade status, a right enjoyed by most U.S. trading partners.
The administration has made every effort to separate from its trade relations what it sees as China’s human rights transgressions, as well as other faults it finds with Beijing’s diplomatic policies.
But on the economic side, the administration has taken a tougher stance. It has twice threatened serious trade sanctions against China over the widespread piracy of American compact discs, computer software, videos and other goods produced under U.S. copyright. China has been warned that it must further open its economy if it wants U.S. support for its bid to enter the World Trade Organization, the global trading regime.
“We have indicated quite clearly to China . . . it needs to change,” Commerce Secretary Mickey Kantor said at a news conference.
Still, the worsening trade deficit comes as overall U.S.-China relations appear to be on the mend, with both governments working to avoid the tensions that developed last year over high-tech piracy, arms proliferation and relations with Taiwan. Secretary of State Warren Christopher is scheduled to visit China in November, and there is talk of a presidential summit as early as next spring if Clinton wins reelection.
While it is increasing at a slower rate than in the past, the growth in the deficit with China, Kantor said, remains “too high, and it’s a result of unfair practice on the part of China, not only the piracy of U.S. products but also keeping U.S. products out of the Chinese market.”
The administration’s reluctance to “play hardball” to the degree that China has, said Jeffrey Fiedler, a China expert at the AFL-CIO, is more than just a trade issue.
“They are so fearful of instability in China that they just keep bending over,” refusing to take a firm stance on any matter that might threaten China’s economic progress, he said of the administration’s senior officials.
