Chinese Commerce Minister Zhong Shan said on Sunday that America’s trade deficit with China had been overstated by official US statistics.
From China’s official Xinhua news agency:
Different statistical methods widen US trade deficit with China by around 20 percent, [Zhong] said Sunday.
A joint work group found that the trade deficit number tracked by the United States was overestimated by 21 percent last year, [the commerce minister] said on the sidelines of the first session of the 13th National People’s Congress.
His comments came after the US Commerce Department said on Friday that America’s monthly trade deficit with China reached a near 10-year high in January. The data come as President Donald Trump steps up his aggressive trade rhetoric, pledging to slap tariffs on China aimed at narrowing the trade deficit.
In addition to tariffs on steel and aluminum imports announced last week, media reports have indicated action on an investigation into Chinese intellectual-property theft and forced technology transfer may be announced soon.
Trump said during his announcement on metals tariffs that his administration would eventually impose a “reciprocal tax,” which would match any tariffs placed on US exports with a tax of equal value.
The value of China’s trade with the USA is less than 1% of Chinese GDP.
Exports make up 18% of Chinese GDP. Exports to the US make up 18% of total exports and the retained value of those exports is about 18%.
The retained value is low because most Chinese exports are, in reality, re-exports containing a high percentage of American I.P. China retains less than 9% of the value of an exported iPhone, for example. Though the WTO records the nominal, wholesale, export value of an iPhone as $400, China’s retained share is about $30
The retained value of American exports to China, on the other hand, is 100% of nominal value because the U.S. owns 100% of their I.P. – from genetically modified seeds to CPUs and genome analyzers.
So trade between the two is roughly in balance, perhaps even favoring the USA.
The U.S. goods nominal trade deficit with China was $366 billion in 2015. But behind the ‘nominal’ label lies an interesting truth:
1. Trade with the world represents only 18% of China’s economy.
2. China’s trade with the U.S. represents only 18% of China’s trade with the world. (China’s economy is less export-dependent than Germany’s, or even Canada’s).
3. China’s export figures to the U.S. are exaggerated because they neglect their underlying IP value.
4. China’s domestic share of an iPhone’s $400 export value is $4, for example. Of China’s $482 billion exports to us, I’m guessing it retains $116 billion in value.
5. The reverse is true for American exports to China, from genetically modified soybeans to computer chips. The U.S. owns 100% of their value, including their I.P. So $116 billion net stays in the USA.
6. We enjoy a healthy trade balance with China that’s probably more beneficial than our trade with the EU, whose IP portfolio rivals ours.
7. Our economy–and our currency–can less afford a $116 billion hit than China’s. Adjusted for PPP, her economy is almost 30% bigger than ours and growing three times faster.
8. China’s economy is much more flexible than ours: when the government announces a policy everyone gets on board, pronto, regardless of short-term sacrifices.
9. Their government is not ‘authoritarian’, it’s Confucian. Like every Chinese government since the birth of Christ. That’s why it gets an 80% trust rating from its people and 93% policy approval. Because it’s a competent Confucian government.
Since all of this is a matter of public record, why do we speak and act as if China were not a most valuable trade partner, and promote and cherish the relationship? Without them, we’d be doomed to the economic equivalent of a nuclear winter.
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