A lot of business flows across the Pacific between China and the United States. So much business, in fact, that American companies sold a record $120.8 billion worth of goods into the Chinese market in 2014. That’s just a nudge more than the 2013 total, according to the US-China Business Council.
But that’s only half the story of our trade relationship with the world’s second largest economy. For the full narrative, you need to familiarize yourself with another, much larger number: $343 billion.
That would be our trade deficit with China in 2014, which was roughly equivalent to the annual GDP of Denmark.
This is a story that is rarely told, and it’s a topic that rarely comes up between our countries’ leaders. It almost assuredly won’t be broached publicly this week, during the bilateral meetings that are the Strategic and Economic Dialogue, nor when Chinese leader Xi Jinping visits the U.S. in September.
But with $343 billion in mind, the reality of our bilateral trading relationship is clear: It’s one-sided. And that has consequences for America’s manufacturing base and the jobs it supports. Bear in mind, $343 billion is a record total – surpassing the previous record annual trade deficit of $318 billion that was set in 2013, which edged out the $315 billion record set in 2012.
Every year, it gets a little wider. It begs the question: How do we compile such deficits, year in and out?
It certainly takes some work. It’s the product of a perfect storm of shortsighted U.S. trade policy, aggressive Chinese mercantilism and the deindustrialization that both have perpetuated in communities across the country.
It’s been a long 15 years since the U.S. granted China permanent normalized trade relations (PNTR), and since then we’ve lost about 5 million American manufacturing jobs. Economists suggest at least 2 million of them fell specifically to Chinese import competition, supported by a vast array of questionable government subsidies.
The impact of those subsidies is compounded by China’s artificially cheap currency, a problem that should have been addressed along with PNTR. As a presidential candidate, Barack Obama spoke often of cutting off market access in response to Chinese currency manipulation. But in the six and a half years of his presidency, his administration hasn’t once cited China for the continued practice, and it has campaigned aggressively against a currency rule in the precedent-setting Trans-Pacific Partnership trade deal.
The self-inflicted currency morass, combined with a painfully slow trade enforcement process, leaves American exporters operating under pressure not only from legitimate Chinese competition, but the government in Beijing, as well.
There are several pressing issues on the U.S.-China docket: cybersecurity, China’s threatening moves in the South China Sea, climate change and human rights. But unless a balanced trade relationship rises to this level as well, America’s ability to do anything about the broader suite of issues diminishes as every year passes.
Here’s are some positions the U.S. should be taking on economic policy with China:
1. Accelerate the appreciation of the yuan until it reaches a point that meaningfully reduces our bilateral trade deficit.
2. Set a goal for reciprocity that is measured by results, like sharp increases in U.S. exports and decreases in China’s state-subsidized exports.
3. Set an enforceable timeline for transitioning state-owned enterprises and reducing industrial overcapacity in at least 19 industrial sectors, including steel.
Our negotiators shouldn’t be afraid to walk away from the table. China is happy to engage in dialogue as long as it doesn’t face consequences. I’ve seen the consequences of staying at the table too long – shuttered factories, lost jobs and broken communities. American workers deserve better.
Scott Paul is president of the Alliance for American Manufacturing. He can be found online at @ScottPaulAAM. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
