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June 7, 2019

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Report reveals US trade deficit overstated, economy benefits

CHINA-US trade has been mutually beneficial, with America reaping substantial benefits from bilateral economic and trade cooperation, China’s Ministry of Commerce said yesterday in a research report.

“China-US economic and trade cooperation has reached unprecedented depth and breadth,” said the report. It noted that bilateral goods trade has surged by roughly 252 times from US$2.5 billion in 1979 to US$633.5 billion last year.

Bilateral trade in services exceeded US$125 billion in 2018, and two-way direct investment totaled nearly US$160 billion in the past four decades.

China’s surplus came mainly from labor-intensive products.

The country saw deficits for products including aircraft, integrated circuits, automobiles and agricultural products, as well as in service trade, showing both countries have capitalized on their respective industrial advantages, it added.

“Strict control by the US over exports to China is one of the important reasons for the trade deficit,” the report read. US export-control measures involve around 3,100 items in 10 categories, including mostly high-tech products. If the US liberalizes its export barriers against China to the same level as those applicable to France, the US trade deficit with China would narrow by a third, according to the Carnegie Endowment for International Peace.

According to a joint study by Chinese and US commerce authorities, the US goods trade deficit data has long been overestimated, with a 21-percent overstatement for 2015, the report said.

Calculated with this percentage, the US side’s goods trade deficit of US$419.2 billion last year was overstated by US$88 billion. As nearly 53 percent of China’s goods trade surplus from the US came from the processing trade, the actual US deficit to China last year should be just US$240.9 billion, the report said.

To calculate the trade deficit, trade in services should also be taken into account. Counting cross-border service trade and service sales of affiliated institutions, the overall US trade deficit to China should be around US$153.6 billion, some 37 percent of the US figure for goods trade deficit to China, the report showed.

Although China has a trade surplus, the bilateral trade benefits both sides, and the argument of “the United States being taken advantage of” does not hold water, said the report.

China is one of the fastest-growing markets for US goods exports, with an average annual growth of 6.3 percent from 2009 to 2018, the report said. The cumulative growth for the period was 73.2 percent, much higher than the average growth of 56.9 percent for other markets of the US.

The significance of China to the US economy is also reflected in job creation. According to a report released by the US-China Business Council in May, US exports to China supported more than 1.1 million American jobs from 2009 to 2018.

Moreover, 54 percent of China’s goods trade surplus from the United States was generated by foreign firms and 53 percent of the surplus came from the processing trade. China only benefited from limited processing charges while the United States accumulated huge benefits from designing, parts supply and marketing.

By trading with China, the United States imported a huge amount of high-quality products at low prices, and therefore managed to keep comparatively low inflation rates and reduce its production costs, said the report.


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