Some people in the United States continue to claim that it has suffered because of its trade deficit with China. Such a view does not make sense if you carefully analyze it. In the global industrial chain and value chain, factors such as goods, technology, human resources and capital have realized large-scaled crossborder movement, realizing a greater market, exchange, circulation and balance of global factors, substantially increasing the efficiency of factor allocation and promoting global economic prosperity. Therefore, in such an era of globalization, new ideas must be adopted to make calculations from the perspective of global factor movement rather that purely from the perspective of trade in goods. Benefits of trading parties depend on their comparative advantages in factors such as their natural endowment, capital accumulation, level of science and technology, development of industries and quality of labor force as well as their models and ways on participating in trade.

In fact, the US trade deficit is inevitable. The dominance of the US dollar as an international currency is a major reason for the long-term trade deficit of the US. The US trade deficit and the dominance of the US dollar are the two sides of a coin. As the dominant international currency, the US dollar must meet the ever-growing need for trade and currency reserves international trade and world economic development. To get US dollars, countries have to rely on their exports to the US.

The imbalance between consumption and savings within the US is a key reason for its trade deficit. The US is a consumption-oriented society. Personal consumption spending accounts for nearly 70 percent of GDP and the overall saving rate remains less than 20 percent. As a result, the imbalance between the low savings and high consumption needs to be offset by foreign trade.

The adjustment of industrial structure in the US is an important reason for its trade deficit. In the second half of the last century, the US started to pursue the growth of the service sector with greater value added. And also due to the impact of the rising cost of labor and other factors and more environmental restrictions, the US started moving its manufacturing overseas. Since 1960, the share of manufacturing in the US economy has declined from 25 percent to 11 percent while the share of the service sector has risen from 64 percent to 80 percent. The domestic production capacity of the US cannot meet the demand for industrial and consumer goods.

The US restriction on high-tech exports to China also contributes to the widening trade deficit. For decades, the US has kept restrictions on high-tech exports to China, formulating the Export Control Act and relevant system and framework focusing on exports of key technologies and products. In 2018, the US high-tech exports to China had a total value of $39.1 billion, accounting for only 10.6 percent in its total high-tech exports, less than one-quarter of China's exports of high-tech products to the US. Scholars estimate that if the US eased the restrictions to the level of its high-tech exports to France, its trade deficit with China would go down by 35 percent.

A comprehensive and objective view of the US trade deficit with China has to take into account the trade in services as well as the trade in goods. US exports of services have long ranked first globally while China has been the third-largest export market for services from the US. In China-US trade, although the US runs a deficit in the trade in goods, it enjoys surplus in the trade in services.

The US deficit with China in essence is to large extent its total deficit with whole East Asia. In Chinese goods exports to the US, over half of them are intermediate goods from processing trade, most of which are from economies in East Asia such as Japan and the ROK. Calculated with the method of value added in trade, in 2018 the US trade deficit with China was US$182.7 billion, down nearly 43% compared with the traditional method.

From the perspective of GNP, the US has gained more benefits than China from bilateral trade. The current statistical method for trade is based on GDP. However, such a method lags behind today's realities. In calculating China-US trade volume, a method based on GNP should be used to include the business revenues of enterprises from their operations in the other country. According to the statistics of US BEA, in 2016, the branches of US companies in China sold goods and services valued at $400 billion (including in part goods and services imported from the United States). If these enterprises were based in the US, their sales in China would be regarded as exports. If the bilateral crossborder trade in goods and trade in services are included, the US has gained more benefits.

The US trade deficit with China has long been overestimated. A joint study by the Chinese Ministry of Commerce and the US Department of Commerce has shown that the US statistics of its trade deficit with China have long overestimated the deficit by around 20 percent. The overestimated part mainly includes two aspects: One is that the US has included the transit trade through other countries and regions such as Hong Kong. The other is that due to the existence of international intermediary traders, the selling prices of Chinese exporters are different from the buying prices of US importers, hence the difference in the statistics made by the Chinese and US Customs.

For years, the US has not suffered losses in its trade with China. Instead, the US has gained a lot of tangible benefits from its trade with China. The US has gained massive international coinage tax thanks to the dominance of the US dollar. The production of a one-hundred US dollar note costs only several cents, but other countries need to provide real products and services worth 100 US dollars to get this one-hundred dollar note. The difference is the international coinage of the US.

China-US trade has provided a large number of quality products to US consumers. Companies have made rich returns from the Chinese market. China is one of the major retail markets in the world.

Through their trade with and investments in China, US companies have shared the dividends of China's development. China has provided a large amount of low-cost dollar capital to the US. China's trade surplus for years has mainly returned to the US through the US Treasury bonds, providing low-cost capital for the US economic development and advanced its prosperity.

The author is chairman of the China Center for International Economic Exchanges and former Chinese vice-premier. This article is compiled by his speech at a seminar themed "US-China Trade and Economic Relations: What Now? What Next?" on July 10, 2019 in Hong Kong.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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