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.

Trump still off key about trade

At the recent summit held in Europe of the seven richest countries, the G-7, President Trump trashed the German trade surplus, “The Germans are bad, very bad. Look at the millions of cars that they’re selling in the USA. Horrible. We’re gonna stop that.” German newspapers translated “very bad” as “evil.” Many "reputable" financial publications, including the Wall Street Journal, sang harmony with Trump. Here is a sample of the lyrics:

Germany’s current account surplus–the amount its exports outpace its imports–recently hit 270 billion euros, close to 8.9 percent of its gross domestic product. This upward trending trade surplus shows little signs of slowing and Germany’s current account balance may rise above 9 percent of its this year. Despite years of criticism from the Obama administration and the International Monetary Fund, Germany has shown no willingness to address the persistent imbalance.

Germany’s persistent current account surpluses add to German GDP while they subtract from the GDP elsewhere around they [sic] world. Germany is not just exporting products–it is exporting stagnation, job losses, and deflation.

Germany’s trade surplus with the U.S. is particularly large and damaging. It exports high-end manufactured goods to the United States–such as cars, auto-parts, chemicals and airplanes. Cars, for instance, make up more than 10 percent of its exports to the U.S. A more balanced trade in these goods would mean many more high quality jobs in the United States in regions that badly need them.