Why US Trade Deficit with China is not too bad after all

Lim, Thow Wee (2009) Why US Trade Deficit with China is not too bad after all. [Dissertation (University of Nottingham only)] (Unpublished)

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Is the U.S. trade deficit made in China? The short answer is no. In recent years U.S. bilateral trade deficits have been increasing not only with China but most other trading partners as well. The imbalance on bilateral trade with China, though large, still accounts for less than one-quarter of the total. However, official purchases of U.S. dollar assets by China and other U.S. trading partners have facilitated the continued high level of U.S. domestic spending, and some analysts believe that large foreign purchases of U.S. assets have been responsible for keeping U.S. long-term interest rates low.

Like China-specific trade policies at the level of individual products, a stronger yuan may benefit other U.S. trading partners, especially ones that have recently lost market share due to depreciation of the U.S. dollar against their own currencies. But yuan appreciation also means lower Chinese official purchases of U.S. dollars, which would likely put upward pressure on U.S. interest rates and thus moderate domestic spending. So yuan appreciation could reduce the U.S. overall trade imbalance, although it is not necessary to address the fundamental cause of the deficit, which lies in current macroeconomic conditions at home.

The United States government will have an urgent case of adopting prudent and traditional ways to obtain credit for consumption, else the threat of trade deficit will eventually go out of a hand and military blackmail and economic blackmail by China, deindustrialization and massive loss of jobs for American workers might be the end result. But I do not foresee the trade deficit coming down just yet and it will maintain at current level for many years to come. China economic ambition, Chinese workers, American household and to a certain extent, American economy might just be cheering at the sidelines as beneficiaries.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 22 Jun 2009 08:32
Last Modified: 22 Dec 2017 17:48
URI: https://eprints.nottingham.ac.uk/id/eprint/22660

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