Causes of U.S.-China trade imbalances: a review

Date08 May 2020
Publication Date08 May 2020
AuthorYongqing Wang
SubjectEconomics,International economics
Causes of U.S.-China trade
imbalances: a review
Yongqing Wang
College of General Studies, University of Wisconsin Milwaukee, Milwaukee,
Waukesha Campus, USA
Purpose It is a common view to Trumpadministration and public that devaluation of Chinesecurrency is
the origin of the US trade decit. However, the previous literature does not support this common view. To
better understand the causes of the US trade imbalanceswith China, this study aims to review the previous
literaturefocusing on the causes of bilateral trade imbalances between the USA and China.
Design/methodology/approach Review previous literature according to the different reasons that
each paper studies.
Findings Based on the previous literature, the Chinese exchangerate is not the main reason for the US
trade imbalances. The ofcialUS trade gures overestimate the amount of decit. The actual causes for the
US trade decit with China perhaps should be the relocationof production to China, low saving in the USA
and high savingin China, andthe US dollar as the internationalcurrency and reserve.
Originality/value By reviewingprevious literature, the authors could better understand the puzzleof the
US trade decitwith China.
Keywords Exchange rate, US China trade decit, US China trade imbalances
Paper type Literature review
1. Introduction
The US bilateral trade decit with China has become a severe issue, especially to Trump
administration. On one hand, the amount of the US bilateral merchandise trade decit with China
has increased dramatically. It was only about $10.4bn in 1990 and $83.8bn in 2000, while it grew
to about $419.2bn in 2018. On the other hand, the Trump administration believes that the running
trade decit reects a ripped off by the US trading partners and a loss to the USA because they
consider that the trade decit hurts US manufacturing and employment. This is one of the main
reasons that the USA unleashed a trade war with China, which began in 2018. The trade war has
gone through several stages. After about two years of back and forth increase in tariffs, China
and the USA signed the US China Phase One trade deal on January 15, 2020. However, the
Phase One trade deal does not end the tensions between the USA and China. Tariffs between the
two countries are still high with the Phase One deal. Bown (2020) states: Average US tariffs on
imports from China will remain elevated at 19.3%. These tariffs are more than six times higher
than before the trade war began in 2018.The trade war not only deteriorates the tension and
dampens the relationship between the USA and China but also drags down the global economy.
In an opinion article, Hormats (2019) believes: To the trade wars disruption we now can add
the possibility of even greater disruption from a potential currency war.This is because the USA
has accused China of manipulating its currency. As pointed out by Siby and Arunachalam (2018):
The Americans over the period made so many allegations against China of deliberately
undervaluing its currency to gain unfair advantage in exports, of dumping its products on world
market at uncompetitive low prices which is made possible by imposing low wages on its workers
and thus violating their human rights.
US China
Journalof Chinese Economic and
ForeignTrade Studies
Vol.13 No. 1, 2020
pp. 37-44
© Emerald Publishing Limited
DOI 10.1108/JCEFTS-01-2020-0003
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