Pacific Money

On China, Trump Still Stuck Harping on the Trade Imbalance

Trump said U.S. trade deficit with China “not sustainable”; China’s commerce ministry said it will take necessary measures to protect Chinese enterprises’ interests.

On China, Trump Still Stuck Harping on the Trade Imbalance
Credit: Official White House Photo

On January 15, Chinese President Xi Jinping and his U.S. counterpart, Donald J. Trump had a telephone discussion on bilateral trade as well as the situation on the Korean Peninsula.

According to the White House, Trump used some tough language on the trade issues during the phone conversation.

“President Trump expressed disappointment that the United States’ trade deficit with China has continued to grow.  President Trump made clear that the situation is not sustainable,” the White House said in a short statement.

In comparison, playing down Trump’s “disappointment” and elaborating on Xi’s stance, the Chinese version was much longer than the U.S. statement.

According to China’s state news agency, Xinhua, Xi suggested indirectly that the interests of both countries and even the international community would be harmed if China and the United States had a trade war.

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Xi said that “keeping bilateral ties on a track of healthy and stable development” is in the interests of both countries and “conforms to the common aspiration of the international community.”

“As economic and trade cooperation brings tangible benefits to both peoples, the two countries should adopt constructive measures to properly settle economic and trade issues of mutual concern by opening up the market to each other and “making the cake of cooperation bigger,” Xi added.

While Xi maintained a diplomatic tone, China’s commerce ministry has taken a stronger stance on trade issues.

On January 11, the ministry vowed that “China will take necessary measures to protect Chinese enterprises’ interests if the United States sticks to unilateral protectionist trade practices,” according to Xinhua.

The ministry also pointed out that “the trade imbalance between the two countries is mainly a result of different economic structures, industrial competitiveness and international division of labor, and China has never sought a trade surplus as the flow of trade is determined by the market.”

On the trade imbalance issue, many economists — including U.S. experts — agree with the ministry’s point that the trade imbalance is market driven.

For example, Matthew P. Goodman of Center for Strategic and International Studies, a prominent think tank in Washington, DC, argued last July that “it is these global imbalances in savings and investment that have primarily fueled the U.S. trade deficit.”

Goodman continued:

[W]e should not pretend that curbing other countries’ unfair practices will make more than a dent in U.S. trade deficits without underlying macroeconomic shifts in savings and investment…Career officials at Treasury and other economic agencies understand all this. But with few if any political appointees between them and the secretary, and a zero-sum mentality on trade in the top echelons of the Trump administration, there is limited scope to sway internal policy debates with compelling, evidence-based analysis. Even to achieve its own economic policy objectives, the Trump team should spend more time listening to its talented career officials.

Trump does not appear to have read Goodman’s analysis.