By Tank Murdoch
(TNS) While China still exported more goods to the United States in 2019 than the other way around, thanks to President Donald Trump’s tariff strategy, the trade deficit between the two countries actually fell.
The Wall Street Journal reported Tuesday that the yawning trade surplus in Beijing’s favor provided all of the impetus the president needed to launch his tariff strategy in a bid to at least reduce the economic advantages China has enjoyed for decades.
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Now, both countries appear poised to sign a historic trade agreement that reduces some tariffs, requires China to buy tens of billions of dollars’ worth of U.S. agricultural products, and removes China’s label as a currency manipulator.
And while a number of economists dispute the president’s assertion that trade deficits are inherently bad, other experts say the hundreds of billions’ worth of deficits for two-plus decades has helped finance China’s military and technology rise in ways that allow Beijing now to rival U.S. hegemony in a part of the world that is a vital economic lifeline to the planet.
Chinese customs data on Tuesday showed that the country had a trade surplus with the U.S. of $295.8 billion last year, compared with aÂ record $323.3 billion in 2018. The figures represent Chinaâ€™s first full year of trade data since the trade war began.
Chinaâ€™s 12.5% decline in exports to the U.S. last year would have narrowed the U.S. deficit more, but Chinese imports from the U.S. dropped even faster. Beijing retaliated against Washington, imposing tariffs on American goods and directing state-owned companies to buy less from what had been its largest single-nation trading partner. Chinaâ€™s imports from the U.S. fell nearly 21%.
Now that China has promised in an imminent trade pact to buy more from the U.S., though it hasnâ€™t specified by how much, its trade surplus with the U.S. should narrow further, economists say.
Washington, for its part, has agreed to remove some of its tariffs on China. Still, 25% punitive levies on $250 billion in Chinese goods, or about half of what China sells to the U.S. each year, remain in place. That could continue to curb American demand for Chinese goods.
â€œThe tariff rollbacks are fairly marginal compared with tariffs that remain in place,â€ Julian Evans-Pritchard, an economist at Capital Economics, said of the U.S. concessions. â€œOn the import side, Chinaâ€™s committing to quite a big step up.â€
Whether deficits are ‘inherently bad’ or not, the fact is the trillions of dollars’ worth of deficits to China’s advantage over the years has served to underwrite Beijing’s rapid, expansive military buildup, according to formerÂ Wall Street JournalÂ editor and Asia expert Brett M. Decker.
He told Breitbart News Radio on SiriusXM a year ago China is using its economic advantage to expand its influence regionally and, eventually, globally.
â€œWhat are our dollars doing?â€ asked Decker. â€œWeâ€™re building, paying for, and underwriting [Chinaâ€™s] military buildup. Weâ€™re building their infrastructure Weâ€™re making their country stronger for the future, sort of at the long-term expense of our own. Weâ€™re not making the investments in our own infrastructure.
â€œEvery three years, weâ€™re at a rate of $1.2 trillion in trade deficit with China,â€ said Decker. â€œThatâ€™s money theyâ€™re just using to build a deepwater fleetÂ so they can project force in the Pacific. Itâ€™s a national security issue, as well.â€
Therefore, the trade deficit â€œis not only a consumer question,â€ said Decker, inviting political observers to contemplate â€œthe bigger pictureâ€ of geopolitics.
Decker said he sees China’s rise today as a parallel to Japan’s rise in the early 20th century.
â€œMy worry about Beijing is, what happens if everything hits the wall? [What] if thereâ€™s a global downturn â€¦ in commodities, trading, and everything they need to build their infrastructure up?” he said.
“Itâ€™s not a coincidence theyâ€™re building this deep water navy. They already look at the South China Sea and the Western Pacific as their resource base. Itâ€™s the same thing Japan did. Thatâ€™s the big worry. Theyâ€™re building their military, theyâ€™re building their infrastructure, and theyâ€™re looking outward. Itâ€™s the same thing Japan did before World War II.”
Trump seems to understand this aspect of the trade deficit, and whether it was Steve Bannon early on or someone else who put the bug in his ear, he’s clearly serious about reducing China’s economic advantages vis-a-vis the trade deficit.
The Phase One portion of the deal, then, is actually Phase One of ending a massive transfer of wealth out of the U.S. to a revisionist power.
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