The US-China Bilateral Trade Deficit
Table 6 shows that the bilateral trade balance swung from a surplus of $3 billion in 1980 to a deficit of $40 billion in 1996. This reversal of the bilateral trade balance is in line with the opposite movements in the overall trade balance of the two countries.
The US overall trade deficit increased from $23 billion in 1980 to $170 billion in 1996, or, equivalently, from 0.8 percent of GDP to 2.2 percent of GDP. In this period, the private saving rate fell as personal consumption increased from 63 percent of GDP to 68 percent of GDP. It is hence quite natural that of the 25 largest US trade partners, 18 of them ran surpluses in their trade with the US in 1996 compared to only 8 countries in 1980.
Just as US saving-investment behavior was widening the US overall trade deficit, macroeconomic forces within China were reducing China’s overall trade deficit. China’s consolidated budget deficit (formal government budget deficit plus central bank financing of SOE losses) amounted to about 6 percent of GDP for the last two years, which is down from the 8 percent of the previous three years. Monetary policy has also been tight. It is hence not surprising that China’s overall trade balance has gone from a deficit of $11 billion in 1993 to surplus of $20 billion in 1996, where were -2 percent of GDP and 2 percent of GDP respectively. ace payday loan
Hence lies the first important determinant of the bilateral trade balance: the opposite movements of macroeconomic forces in the two countries, reinforced by demographic trends and by China’s reforms. To a first approximation, the widening bilateral trade deficit reflected the saving slow down in the US (that has been pulling in foreign resources to finance capital formation) and the surge in investment-motivated saving in China (that was necessary to compensate for the low level of financial intermediation available to the increasingly liberalized non-state sector).