As the trade war escalates with China, President Trump and his economic advisers reiterate again and again that China has a $500-illion surplus over the US and that China’s economy has prospered at the expense of the US.
Such false and misleading allegations are perhaps the reason why his tariff policy is losing steam. China’s economic development is a typical example of a developing country in Asia.
Deng Xiaoping announced the “Four Modernisations” plan and open up China’s market to foreigners in 1978. Two years later President Bill Clinton granted most-favoured-nation status to China as an incentive for promoting trade with America. In the next few decades, China’s export leapt forward and blossomed, like those of other developing countries in the region.
China has become the world’s factory because of the size of its labour force. Chinese workers, like others in the region, have been working diligently to improve and build their wellbeing, and trade surplus over the US, if that matters. In exchange, Americans paid for getting good value for their money and kept their cost of living down.
Trump has over-exaggerated the massive trade deficit with China. According to a March 19 Bloomberg Opinion report, the deficit in goods and services with China in value-added terms in 2014 was $200 billion, not $500 billion. Take an iPhone for example. From the export value of, say, $180 for an iPhone 6, the Chinese factory (owned by Foxconn, a Taiwanese company to be accurate) received roughly 5 per cent for assembling the parts, with the rest paid to component suppliers in Japan, Taiwan and South Korea. Since the export value is attributed to China as the final exporter, the billions earned from iPhone exports are counted as China’s surplus over the US, which is a distorted figure.
Donald Trump believes trade wars are easy to win, but they’re not. Does he know that it is nearly impossible to relocate many kinds of manufacturing facilities, such as a sewing factory, back to the US and employ American seamstresses at the current wages?
Despite Trump’s false allegations, they come from the mouth of the president of the United States at a political rally and the audience, especially his hardcore supporters, will clap their hands, chime in and shout, “Yeah! Donald Trump will make America great again!”