The US trade deficit with China

Americans keep buying low-end consumer goods from China, as they have for more than a decade. China's exports of textiles, clothes and shoes to the U.S. in 2011 were up almost 50% from 2008. On top of that, plenty of computer goods and other machinery are assembled in China and shipped to the U.S.—meaning that they are counted as Chinese-made goods even if much of the value of the machinery is produced elsewhere.

China imports of oil and minerals to power its economy is catching up with demand for the textiles, shoes, computer goods and machinery that it exports.

The U.S. exported 0.4 percent more goods to China, the world’s second largest economy. But the deficit with China grew 7.2 percent in July to $29.4 billion because U.S. imports from China jumped 5.6 percent.

Still, China’s economy has weakened this year and may be worsening. On Monday, China reported that its imports from the rest of the world shrank in August.

In July, exports of American farm goods rose to all-time high. There were also gains in exports of commercial aircraft and electric generators. The gains were offset by declines in overseas sales of autos and auto parts and heavy machinery.

The U.S. has ratcheted up exports to China, too. Sales of vehicles—including airplanes, a segment in which U.S. firms have a technological edge over Chinese manufacturers—roughly doubled to $12.4 billion in 2011 from 2008. Sales of soybeans have also risen, as Chinese households can afford a higher-protein diet. But the U.S. has few of the hard commodities China needs to fuel its industrial engine, and U.S. exports are still dwarfed by imports coming in the other direction across the Pacific.

As a result, the annual U.S. trade deficit with China has increased 18% since 2008 to $202 billion—an amount substantially larger than China's global surplus. The U.S.-China trade pattern continued in the first half of the year, with the U.S. trade deficit with China climbing 17% to $99.7 billion over the period.

The successful American businessman and investor Warren Buffett was quoted in the Associated Press (January 20, 2006) as saying "The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil... Right now, the rest of the world owns $3 trillion more of us than we own of them."

At the same time, when asked which country represents the greatest danger to the US, more Americans volunteer China (26%) than name any other country, including Iran and North Korea. And about half (52%) view China's emergence as a world power as a major threat to the US.

Republicans are more concerned than Democrats about the impact of China's rise. Six in 10 Republicans believe Beijing's rise as a world power poses a major threat to the US, compared with 48% of Democrats. And Republicans (74%) are more likely than Democrats (61%) to say China cannot be trusted.

The U.S. isn't alone in running a deficit with China. In 2011, the European Union bought $144.8 billion more than it sold from China. Strong exports of machinery from Germany, which runs a trade surplus with China, helped hold the overall European deficit down.

During the first six months of 2012, China's overall trade surplus also increased, up to $69.9 billion from $46 billion in the first half of 2011, in a break from the pattern of flat and shrinking surpluses in the years after the financial crisis. But unlike in past years, the first half's trade surplus isn't a sign of Chinese economic strength. Rather, Chinese exports and import growth both slowed sharply from the year earlier, as China's economy cooled and a contracting euro-zone economy took the heat out of external demand.

Sources:
census.gov
BBC News
TIME.com
WSJ.com
en.wikipedia