By Assunta Ng
Northwest Asian Weekly
President Donald Trump has lashed out at China for unfair trade practices, leading to his decision to impose tariffs. The $350 billion trade deficit with China may sound overwhelming, but experts have shown that Trump’s interpretations of trade deficit is outdated, thus furthering the public’s misconceptions in regard to U.S.–China trade.
Last July, Trump’s statement said, “Trade between our nations, however, has been very unfair, for a very long time … China has, for example, long been engaging in several unfair practices related to the acquisition of American intellectual property and technology. These practices, documented in an extensive report published by the United States Trade Representative (USTR) on March 22, 2018, harm our economic and national security and deepen our already massive trade imbalance with China.”
The Northwest Asian Weekly interviewed Ben Zhang, CEO of Greater China Industries, and the new Chinese Consul General, Wang Donghua, who was in Seattle last Saturday, on their U.S.–China trade views.
1. Are trade deficits actually read correctly?
Trump’s view on trade is based on business’ bottom-line estimates, whereas trade has different sets of criteria in measuring success.
For instance, University of Washington Foster School of Business’ Ed Rice gave an example about his dental visits in a panel for the Seattle Rotary Club. He said that he pays his dentist to fix his teeth consistently, and in return, he makes no money from his dentist. This shows that he has a deficit with the dentist.
However, the reality is, you can’t call services performed on teeth a deficit. And, we also know that the more dental services he has done, the better it will be for his health.
A trade deficit means a country imports more than it exports. According to Investopedia, “A country’s large trade deficit means that that nation’s citizens are so wealthy that they can afford to purchase what other nations have to offer. So it isn’t necessary desirable or fair to compare exports to imports, let alone to consider them to be two sides of the same coin. As large as American imports are, the U.S. still exports more than any country, except China.”
The United States imports about $500 billion worth from China. China imports about $150 billion from the United States. The difference in these amounts is the $350 billion trade deficit.
This is not cause for alarm, though. The United States is the third-most populous country in the world with respect to gross domestic product. Its total trade deficit is only 2.5 percent of its GDP.
Consul General Wang said, “You can’t look at U.S.–China trade from the surface. You have to understand all angles. Trade produces mutual benefits for both the U.S. and China. It’s impossible for China to take advantage of the U.S.”
2. Who actually makes the most money?
U.S. companies make the most money, said Consul General Wang.
“You can’t judge a book by its cover,” added Zhang.
“Out of the $500 billion in trade with China, Apple products alone make up $200 billion. Another $200 billion is from Target and Walmart,” said Zhang. “Those are U.S. companies. The remaining $100 billion are from people like me (millions of other businesses) who are involved in buying Chinese goods.”
No wonder Apple is now a trillion-dollar company. It takes its technological know-how to China and uses China’s
cheap labor force to manufacture its products for global markets. And you know how much the iPhone sells for in the United States! While there are other costs besides manufacturing, Apple still pockets a hefty chunk in profit!
Is a $350 billion deficient really a bad deal for the United States?
3. Does China really take away jobs from Americans?
The above was Trump’s claim. “In today’s competitive world, each country competes on its competitive advantage,” said Zhang. “The U.S. is famous for technology companies, such as Boeing and Microsoft, as well as service sectors such as banking, finance, and insurance.
“China is still considered a developing country. Its advantage is low-skilled labor and intensive manufacturing. Its mass population is working in low-wage sweat shops for about $450 to $500 a month. Would U.S. workers be willing to work in such low-wage jobs, like less than a dollar an hour? It’s very old-school thinking to assume that China is taking legitimate opportunities away from Americans.”
According to the New York Times, the tariffs imposed on Chinese goods seem to have less of an effect on helping American products such as tires, since Chinese later came to America to open tire factories.
4. Trump thinks trade war will hurt China. Is he right?
“Trump thinks the trade war will crash the Chinese economy,” suggests Zhang. “But he forgets that the Chinese government is promoting trade with the rest of the world by building up high speed trains and infrastructure across five continents.”
Zhang added, “Since Trump’s intent is to withdraw from the Trans–Pacific Partnership and World Trade Organization, pursue lots of rules and protections among its old trade partners in the European Union, and gut the North American Free Trade Agreement, his policies will eventually slow down the U.S. economy. This is actually a catalyst for China becoming the largest economy in the world.”
5. Trump thinks he will win. Is he right?
With the United States’ swelling stock market and China’s drop, Trump believes he is going to win this war with China. Not so fast. Some economists predict the growing U.S. economy won’t last due to a number of factors, including the decline of the middle class and home ownership compared to numbers before the 2008 financial meltdown.
Also, Trump may think China can be replaced by other developing countries as trading partners. However, Zhang argues that China is irreplaceable in his business dealings with other Asian countries.
“Chinese products create value, in addition to the $500 billion in trade. Other countries don’t have the infrastructure like China. I have products sitting in Bangladesh and Cambodia for weeks because they don’t have enough boats to ship the merchandise. Countries like Vietnam and Thailand might be able to manufacture textile and clothes, but they can’t make other items.”
Consul General Wang said China provides the best investment criteria for U.S. investors with good labor force.”
Also, U.S. consumers have expanded their consuming power through Chinese goods, he said.
6. Who actually sacrifices more?
“The sacrifices China has made are huge,” said Zhang.
“Look at China’s water, air, and the environment — they are all polluted with emissions from factory production. The cost to Chinese people’s health is immense. Many parents must leave their children behind with relatives so that they can go find work in factories in big cities. That’s why you see so many Chinese going back to visit their hometown once a year during Chinese New Year,” Zhang explained.
Also, some Chinese vendors do business with U.S. companies such as Walmart. These vendors don’t get paid until the merchandise is sold.
One area where Zhang feels China could do better is to do more on cracking down on counterfeit goods such as handbags, coats, and watches. China is also famous for stealing intellectual property. “Microsoft’s Windows sells for $700 in the United States, but in China, you can get it for the equivalent of $10 USD,” said Zhang. “Pirating movies in China is also extreme. When I was in China, people on the street offered all kinds of American movies for just a few bucks.”
Zhang concludes that Chinese copyright infringement and piracy are more legitimate concerns for Western countries.
Editor’s Note: Ben Zhang will be speaking on U.S.–China trade at noon on Sept. 27 for the Washington State China Relations Council at Davis Wright Tremaine, 1201 3rd Ave.
Assunta can be reached at email@example.com.