June 11, 2018

$119,050,900,000: Merchandise Trade Deficit With China Hit Record Through April


President Xi is sitting pretty

These figures are not as alarming as they seem. They are part of a triangular trade flow that includes Australia. To make all the gadgets they sell to Americans China needs a lot of raw materials, particularly iron ore, aluminium oxide and metallurgical coal. And Australia has heaps of them all -- sometimes just sitting on the ground just waiting to be scooped up

So China buys heaps of those things using the surplus dollars that they get from trading with America. And Australia in turn buys heaps from America using the greenbacks they got from China. Australia doesn't make much. It is overflowing with natural resources that other countries buy. So it makes sense to buy in manufactured goods with the easy dollars Australia gets from exporting commodities. And Australia buys in lots of stuff from America. So Australia has a big trade deficit with America. In other words, some of those greenbacks that flow to China come back to America via Australia. It doesn't all balance out exactly but the balance is not as bad as it looks at first.

So what does China do with its great hoard (trillions) of greenbacks? It sends a lot of them straight back to America as investments. It uses them to buy American companies and American real estate. That sounds bad to a lot of people but again it is not as bad as you think. China is in fact very trusting in doing so.

Say they buy an American farm. Does that deprive America of anything? Hardly. They cannot pick the farm up and take it back to China can they? They just take it on faith that America will let them keep and use it. They make themselves hostage to America. And whether they buy farms or companies it will usually be something that they already know about -- something in which they have expertise. So they will combine their expertise with American expertise to create a better business

Let me give a theoretical example: Say they buy up a soy bean farm. Chinese eat a lot of soy beans. The American farmer will probably be left in charge of the farm because he knows best how to farm in America. What the Chinese know about in great detail will be what cultivar of the beans is most popular in China and how best to market the beans. So the new Chinese owner will guide the American farmer on what beans to plant, when to plant them and how to prepare them for export. Result: more exports of beans from America to China -- thus helping to reduce that trade imbalance.

It's not always as simple and as balanced as that but something like that does often happen. So again, the imbalances are not as bad as they look at first. There is still a lot of work for Mr Trump to do, however. There is a real imbalance in America's trade with China and one part of the reason for that is that China put up barriers to imports from America. Mr Trump has already got some of those barriers pulled down but there is still more to be done

And as every economist will tell you, there are "invisible" exports -- for instance the financial services of Wall St and patent rights. China buys a lot of them. Americans hold a lot of patents and charge people to use them. China is often slack in buying patents it uses but when they want to export something they have to have the patent rights that thing uses. So America has a big surplus with China on "invisibles". There is still not an overall balance but Mr Trump has less work to do to get fair trade than it at first appears


The U.S. merchandise trade deficit with China set a record through April, hitting $119,050,900,000 for the first four months of 2018, according to data released today by the Census Bureau.

From January through April, the Census Bureau reports, the United States exported $42,291,500,000 in goods to China while importing $161,342,400,000.

In other words, when measured by dollar value, the United States bought about 3.8 times as much in goods from China as China bought from the United States.

Prior to this year, the record for the highest trade deficit with China in the first four months of the year came in 2015, when it hit $115,320,000,000 in constant April 2018 dollars (adjusted using the Bureau of Labor Statistics inflation calculator).

The last time the U.S. ran a merchandise trade surplus with China in any given month, according to the Census Bureau data, was in April 1986, when the U.S. ran a $54,000,000 trade surplus with China. In every month since then, the U.S. has run a merchandise trade deficit with China.

In 2017, according to the Census Bureau, the top products the U.S. imported from China (by dollar value) were cell phones and other household goods ($70,359,818,000); computers ($45,515,206,000); telecommunications equipment ($33,490,521,000); computer accessories ($31,648,577,000); toys, games and sporting goods ($26,751,412,000); apparel, textiles, nonwool or cotton ($24,137,388,000); furniture, household goods ($20,669,126,000); other parts and accessories of vehicles ($14,406,417,000); household appliances ($14,138,581,000); and electric apparatus ($14,080,858,000).

The top products the U.S. exported to China in 2017, according to the Census Bureau, were civilian aircraft, engines, equipment and parts ($16,264,533,000); soybeans ($12,258,835,000); passenger cars, new and used ($10,211,268,000); semiconductors ($6,076,509,000); industrial machines, other ($5,447,303,000); crude oil ($4,400,921,000); plastic materials ($4,002,797,000); medicinal equipment ($3,453,343,000); pulpwood and woodpulp ($3,359,165,000); and logs and lumber ($3,177,402,000).

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