Why we have a trade deficit with China

President Trump has said that the US trade deficit with China should have been “fixed” years ago. I agree, but for different reasons. Why do we run a deficit in trade with China?

The administration wants China to quit violating our copyright and patent laws, stop stealing our technology and forcing companies doing business in China to share technology. But what does that have to do with a trade deficit? We buy mostly consumer goods from China that are made using low tech, labor intensive processes. And why would we expect China to enforce our laws? Anyway, all countries since World War II have grown by importing better technology from the West. Japan was first. We should want that to happen so their people can grow out of poverty.

Some have accused China of being a currency manipulator, meaning that they keep their yuan artificially low in exchange for the US dollar so that their products are cheaper for Americans. That may have been true in the past but China has allowed its currency to float on the market for years and it has still drifted lower. Besides, no country in the world manipulates its currency the ways the Fed does the US dollar.

Washington Irving predicted our next recession

The US stock market was stuck “in irons,” as sailors describe a ship sitting still in a windless ocean, for most of this year. But recently it tested new highs as earnings reports from banks and the tech sector inflated its sails. Mainstream economists can see no icebergs ahead in their crystal balls. One might describe the current investing climate this way:

Every now and then the world is visited by one of these delusive seasons, when “the credit system” as it is called, expands to full luxuriance; everybody trusts everybody; a bad debt is a thing unheard of; the broad way to certain and sudden wealth lies plain and open; and men are tempted to dash forward boldly, from the facility of borrowing.