Smaller US Trade Deficit = Weaker Chinese Economy?

As the world prepares for the Trump administration, an analyst says China could have a lot to lose from increased US trade barriers.

According to David Cui, the head of China equity strategy at Bank of America Merrill Lynch, if the US cut their trade deficit with China from the current $367 billion to around $240 billion, China’s GDP could decline by one or two percentage points.

This would bring China’s growth closer to 4 or 5%, but considering there is widespread speculation that China exaggerates the growth figures – the real number could be closer to 3% when reductions from a lower US trade deficit are taken into account.

There are some who pass off trade deficits as no big deal, but take a moment to consider what a trade deficit means:

One country is buying more real goods and services from one country than the other country sells to them. That means paper (or digital) money goes one way, and goods come the other way. Ask yourself if this is sustainable in the long run. Ask yourself if a country can succeed if their internal economy continues to weaken and artificially created money is expected to pay for real goods year after year after year.

The consequences of trade deficits with China have been severe for the United States. Millions of manufacturing jobs were lost, factories shuttered, and the middle class declined, while China has grown dramatically more wealthy compared to where they started. Who have those trade deficits really benefitted.

We are entering a new era in trade relations, and the orthodoxy of “free” trade is under siege like never before.

Spencer Fernando

Photo – Twitter