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To the trade war of the US with China

Reasons of the US administration for protective tariffs due to US-China trade deficit misleading and hypocritical

Symbol picture of trade war US and China.


A recent study by Deutsche Bank Research points out that the trade deficit disregards the turnover of US companies in China. Taking them into account leads to an estimated US surplus with China.

September 24th, 2018 – The Trump administration has now imposed protective tariffs on imports of goods from China amounting to $250bn. Trump cites the $376bn deficit in trade in goods with China as the main reason. So China delivers $376bn more goods to the USA on balance than the USA delivers goods to China.  


According to Trump, this fact is "unfair". The protective tariffs serve to protect jobs in the USA and also to prevent the further "theft" of intellectual property and American technology1.  


Before we examine the facts about the trade deficit, here's another fact. The Washington Post reported on May 1, 2018 that Trump made 3,001 false or misleading claims during the 466 days of his presidency an average of 6.5 such claims per day2. Numerous meticulous refutations of Trump claims are also regularly listed in the Fact Check of the Associated Press3.  


The trade deficit with China also joins misleading and hypocritical claims by Trump as a justification for protective tariffs.

Trade balance does not capture sales from US firms producing and selling in China

We rely on an analysis by Deutsche Bank Research dated June 11, 2018 entitled "US economic balances with partners" by Zhiwei Zhang and Yi Xiong4.  


The two authors note that the number of China's trade surplus with the US "do not capture the true size of US business interest in China". Part of this US business in China is that US companies such as Apple or General Motors produce in China and have sold more iPhones and more cars from General Motors there than in the USA itself. Furthermore, companies from Japan and South Korea continue to produce large quantities of goods in China, which are then exported to the USA.  


Deutsche Bank Research has taken these facts into account and compiled an "aggregated sales balance". According to this, in 2015 the US sold $372bn of goods and services to China, while China sold $403bn to the US. So the US has bought $30bn more from China than vice versa, a deficit by 90% smaller.  


The two authors estimate that this deficit has now turned into a surplus of $20bnn in US sales to China in 2017.  


The trade balance does not capture the results of US direct investment in China and the resulting sales to China nor the exports of third parties, such as Japan and South Korea, from China to the US.  


Therefore, the two authors describe the use of the bilateral trade balance as "misleading".

US firms producing and selling all over the world but only a few countries do the same in the US

The Deutsche Bank study also highlights another important aspect.  


Deutsche Bank studies show "that while the US remained in trade deficit, US companies have sold more to the rest of the world than other countries have sold to the US for every year in the last 10 years: the US aggregate sales balance rose from a $0.2trn surplus in 2005 to a $0.9trn surplus in 2015”.  


The authors see an "asymmetry" here:  

 

  • "US multinationals do not sell more in every country than their counterparts do in the US. There is asymmetry: US corporates operate all over the world, but not all corporates operate in the US. Foreign subsidiaries in the US are mostly from Japan, Canada and a few European countries. In contrast emerging market corporates generally have limited presence in the USA."

Protective tariffs serving the power-politcal interests of the US

We add: this asymmetry is an economic structural feature that corresponds to a policy of the US to regard and treat the whole world as its sphere of influence and domination. China, which introduced a market economy under the leadership of Deng Xiaoping after the death of Mao Tsedong, opposes this claim as a powerful competitor.  


The protective tariffs are aimed at curbing and weakening China for reasons of power politics. The American workers and their jobs are serving only as a pretext.  


So also on this issue deception and hypocrisy on the part of the Trump administration.

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