China Center for International Economic Exchanges

Wei Jianguo: Will the US trade deficit reach one trillion?
Date:Sep 14,2018    Source:CCIEE

The trade data released by the US Department of Commerce recently shows that the US trade deficit in goods and services has hit a new record in July 2018. According to the latest forecast of the world-renowned consulting firm Willis Towers Watson, the US global trade deficit will reach 739.3 billion dollar by the end of this year, up 34% from 552.2 billion in 2017, the largest in the US history.

This record-breaking trade deficit has the following characteristics. On the one hand, the United States has trade deficits with all major trading partners and the bilateral trade deficit has reached the highest level. On the other hand, this is only the beginning. Since the beginning of the trade war, the US trade deficit has soared from more than 500 billion to more than 700 billion. Willis Towers Watson predicts that with the escalation of the trade war and other countries start to fight back, the US trade deficit may exceed 1 trillion dollar in 2019, equivalent to 1/17 of the total global trade in goods in 2017.

Many people in the United States are unable to comprehend the ever-increasing trade deficit because the Trump administration has repeatedly said that the trade war is good for America. If, as predicted, the trade deficit exceeds $1 trillion in the future, can the US continue its global trade? Furthermore, the trade war has increased import prices, damaged consumers’ interests, and blocked exports of agricultural products. Can the Republican Party still win the mid-term election?

The US government announced that it would further impose tariffs, however, several domestic technology companies and industry associations called for tariffs reduction. What makes American companies even more anxious is that the US government’s volatility is extremely harmful to their future development and marketing plan. They are considering to move their business overseas in order to seek a more stable market and environment for development. It is said that Exxon-Mobil, the largest US oil company will invest $10 billion in China’s Guangdong to establish a wholly-owned project. If implemented, Exxon-Mobil will be the second large US company after Tesla to shift their operation to China.

America’s allies are also shocked by America’s recent move. Trump hinted that there might be a trade war between the US and Japan unless Japan makes more contribution to maintain the US-Japan relationship. The first round of negotiations between US Trade Representative Robert Emmet Lighthizer and the EU Trade Commissioner Cecilia Malmstr?m did not yield substantive results. The United States intends to exert more pressure on the EU and demands a quick result, which is also why the US government has not continued to increase tax on Chinese exports. However, the expansion of the deficit has exposed the eagerness of the United States to Japan and Europe: time is not on the side of the United States and thus the US government is striving for the “window period” between the end of this year and the beginning of next year.

Since March of this year, the US has made three moves in the US-China trade war, but each time it ended in failure. The United States has chosen a reckless way to handle the relationship between the world’s largest and the second largest economies, showing that it is very anxious. On the contrary, China has been very calm. According to the latest data, China’s exports in July increased by 12.2% year-on-year, while its imports increased by 27.3%. The import growth has narrowed down the trade surplus to $28.05 billion, indicating that China’s has maintained a stable growth in foreign trade.

 

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