US China Trade Deficit

Full Name
US China Trade Deficit

The US grew its trade deficit with china dramatically from the early 1990s to present day.

  • $20 Billion trade deficit in 1993
  • $526 Billion tradeeficit in 2018 (27x growht)

Causes of US-China Trade Deficit

  • China purposely pursued it to generate jobs for Chinese citizens
    • Helped China develop and urbanize
    • Supported by People's Bank of China
      • Chinese Currency devalued by 60% in 1994 and pegged to the dollar
      • Dollar peg remained strict till 2004
      • Dollar peg strictly held since 2004
      • Kept the exchange rate stable, so that Chinese labor was always cheaper - even though China had a huge trade surplesseds
    • This Central Bank support stopped the imbalances from correcting
      • At the same time the US Federal Reserve pursed inflation in the US
        • Alternative of delfation would have helped the US compete with China and reduce the Trade Deficit
    • Ultimate the huge deficit spurred trade wars in 2018