Question

China- US trade deficit.

Answer 1

There has a trade deficit faced by US with China of $345.6 billion in 2019 which was around 18% less than the trade deficit of $ 419.5 billion in 2018.

This trade deficit has been persisting from many years. The main reasons behind this are :

1. One of the major reasons for this deficit being consistently persist is that China is been able to produce many consumer goods at a lower price compared to other countries because of lower wage rates being fixed in China due to lower standard of living of the people mainly the working class.

2. A partialy fixed exchange rate of Chinese yuan to US dollar.

China is able to peg it's yuan with US dollar by purchasing and selling through US Treasurys.

3. The major categories of China's exports to US are cell phones, computers, sports equipments and toys. While if we look at the composition of US exports to China, it majorly consists of aircrafts, soyabean and semiconductors. Most of the raw material is being exported from US to China at a low cost and further the final goods are exported back to US thus adding to the trade deficit.