China and U.S. are now major trading partners

While it's true that China's trade surplus with the United States has reached more than $100 billion a year, it doesn't follow that losses in U.S. manufacturing jobs in recent years have been caused by China's protectionism. The real reasons are much more complicated, says Ernesto Zedillo, director, Yale Centre for the Study of Globalisation.

According to Zedillo:

The U.S. trade deficit is large because U.S. national expenditures exceed its national income; this gap is reflected in a current account deficit that will be close to $550 billion this year.

China figures in a big portion of this deficit because it is now the U.S.' second-largest trading partner.

China has seen its total imports grow exponentially in recent years; it is now the third-largest importer in the world. And, yes, the United States has benefited from this evolution. Since 2001 China has been the most dynamic market for U.S. exports, says Zedillo.

This year alone U.S. exports to China have grown by more than 20 percent; if anything, overall trade with China has been supportive of – not destructive to – U.S. economic activity.

Furthermore, U.S. companies have benefited from China's policy of tapping world markets; one-fourth of China's largest exporters are American companies, not to mention those that are already obtaining a significant chunk of their total revenues from sales in China's domestic market.

Needless to say, it's in nobody's interests-least of all China's-to jeopardise U.S. economic growth. Whether the China bashers like it or not, the American and Chinese economies have become interdependent to no minor extent – which is actually good news for global peace and prosperity, says Zedillo.

Source: Ernesto Zedillo (Yale Centre for the Study of Globalisation), Self-Inflicted China Syndrome, Forbes, December 22, 2003.

For text http://www.forbes.com/forbes/2003/1222/045.html
For more on Trade http://www.ncpa.org/iss/eco/

FMF Policy Bulletin/ 30 December 2003