The United States' chronic trade deficit with China was a key agenda item at the summit held in Beijing on the 14th. However, analysts say the fundamental trade imbalance between the two countries is difficult to resolve, given that the U.S. is the world's largest consumer market driven by domestic demand, while China suffers from chronic "underconsumption" and must rely on exports. This suggests the Donald Trump administration's tariff policy is not the answer.
Japan's Nihon Keizai Shimbun offered this assessment of the second trade war that began last year. According to the U.S. Department of Commerce, American imports from China fell 30% last year compared with a year earlier. U.S. exports to China also dropped 26% during the same period.
Products from emerging markets filled the void left by Chinese imports. When Nikkei used artificial intelligence (AI) to analyze 19,000 U.S. import items, 80% of the top 100 items that saw sharp declines in imports from China were replaced by goods from Vietnam or India. For example, U.S. laptop imports from Vietnam more than doubled last year from a year earlier. During the same period, Indian-made smartphones imported into the U.S. filled approximately 90% of the decline in Chinese imports.
China, which counts the U.S. as its largest market, also diversified its exports during the tariff war. While China's exports to the U.S. fell 20% year-on-year last year, exports to the Association of Southeast Asian Nations (ASEAN) and Africa rose 13% and 26%, respectively.
The Trump administration, which opened the tariff salvo against China shortly after taking office last year, raised tariffs on China to as much as 145% by April, pushing pressure to its peak. China countered by raising the maximum tariff on U.S. imports to 125%. The two sides dramatically agreed to a trade truce at high-level talks a month later, silencing the tariff guns, but statistically, the decline in U.S.-China trade was already underway.
However, Nikkei pointed out that the reduced trade figures between the U.S. and China may differ from reality. That is because exports from China routed through third countries such as Southeast Asia are hidden in the numbers. Hunter Clark, an economic policy adviser at the Federal Reserve Bank of New York, said, "The U.S. trade deficit with China has declined on the surface since the trade war, but the overall trade deficit has been maintained," adding, "This is because shipments that used to go directly from China to the U.S. have been rerouted through Southeast Asia and elsewhere." In other words, the decline in U.S.-China trade is close to a statistical illusion.
Analysts say it is nearly impossible for President Trump to achieve his desired resolution of the trade deficit with China unless the economic structures of the consumption-driven U.S. and export-dependent China change. In fact, Trump's tariffs have pushed up the U.S. core personal consumption expenditures (PCE) price index by 0.8 percentage points in a year. However, the U.S. goods trade deficit last year reached an all-time high of $1.2309 trillion. Nikkei interpreted this as "Americans continuing to overconsume despite tariffs."
China, by contrast, is suffering from a deep-rooted slump. Although the Chinese government has set boosting domestic demand as a policy goal, the consumption contraction that began with the real estate downturn has shown little sign of improvement. Consumption in China accounts for about 39% of gross domestic product (GDP), far behind the U.S. (about 68%) and Japan (about 53%). Although China posted a trade surplus of $1 trillion last year for the first time in history, this was merely the result of pushing out overproduced goods as exports. Nikkei diagnosed, "If the U.S. is overconsuming, China is 'underconsuming,'" adding, "This is why the trade imbalance between the U.S. and China continues to widen even as Washington wages a trade war with tariffs."
