Truth behind the figure of Sino-US trade deficit

Written by Lei Sihai Translated by Liang Tao

The United States recently released data suggesting that the trade deficit with China accounted for 47 percent of its overall foreign trade deficit in 2016. Armed with this information, some Americans appear prepared to launch a trade war with China. But it would be based on paradoxical logic, as a large part of the so-called huge Sino-US trade deficit should actually be covered by the US-ROK and US-Japan deficit.

Leaving aside the question of the accuracy of the deficit figures published by the US, even if the numbers are correct, they need to be critically assessed. 

Let us look specifically at the Sino-US trade deficit, at how most of it comes into being. 

Take as an example, the Taiwan-based contract electronics manufacturer, Foxconn, which owns the Apple mobile phone production lines in the mainland and exports the mobile devices to the US. An imported Apple phone is worth $200, and so according to the US statistics, all of the 200-dollar deficit has been counted on the Chinese mainland. However, so far, the Chinese mainland is not equipped to produce most iPhone components. The display is imported from South Korea, the body is imported from Taiwan of China, and the sensor, camera and other components are imported from Japan.

All that China has provided may simply be the battery. In terms of the overall price of an entire mobile phone, that may account for less than 10 dollars. And then taking the assembly as China's added value into account, it may come to about $1 for each device. In other words, from China's perspective, in exporting a single iPhone to the US, China's share of the product and service only add up to 11 dollars, which means China should receive an $11 surplus from the US. Whilst the US figure is $200, nearly 20 times greater.

This situation holds for most of China's exports to the US. For example, according to US data, China exported $130-billion-worth mobile phones, tablets, laptops and related accessories to the US in 2015, accounting for almost one-third of all exports to the US. However, the vast majority of these products' accessories came from South Korea, Japan and Taiwan province.  

As a result, China's trade with South Korea and Japan has suffered huge deficits in these years. China's trade deficit with South Korea was $55.2 billion in 2014 and $46.9 billion in 2015. In 2016, China's trade deficit with Japan was 110 billion yuan, or almost 16 billion US dollars. Also in 2016, the mainland trade deficit with Taiwan was 653.97 billion yuan, almost $100 billion. A large part of the electronic components exported from Taiwan to the mainland are from Japan and South Korea.

Just by taking these figures into account, the so-called US trade deficit with China can at least be reduced by nearly 150 billion US dollars in 2016. 

This is the reason behind the enormous difference in the trade deficit calculated respectively by China and the US.

If Washington decides to wage a trade war with China using only trade figures as an excuse, then that is simply irresponsible. 

Today's pattern of trade and the global division of labor has been created single-handedly by the US, who is now the world's largest developed country and once was the initiator and leader of economic globalization. This division of labor has allowed production factors in various countries to be combined effectively, so as to provide the whole world with products at the lowest cost and the best quality. Undoubtedly the biggest beneficiaries are American consumers.

As a part of this global labor division, China has provided American consumers with a large number of inexpensive products of high quality, especially for those belonging to middle and lower social groups. But for China itself, still limited by the realities of developing countries, even though the volume of trade is huge, China's profits remain very limited. China makes most money from low cost mass assembling, tasks that US workers don't want to do. 

If the US really disregards these facts and launches a trade war with China, the result will be lose-lose. The global trade system will be broken disastrously once the two largest countries engage in a trade war. Against the current uncertainty of global economic recovery, the consequences will be a direct threat to the unstable world economy, as well as national economic stability in various countries. 

In fact, after the US dollar became the international reserve currency in the 1970s, the US has long been in a trade deficit situation. And as long as the reigning status of dollar exists, this situation will not be changed. If Washington sincerely wants to end the trade deficit, the first thing they need to do is to work jointly with other countries to figure out a more rational global monetary system. When the other countries' demand for dollars gradually disappears, US trade will naturally turn balanced.