China’s record trade surplus of almost $1 trillion last year has a nearly perfect mirror image on the other side of the world: an American trade deficit last year that is expected to clock in at around $1 trillion.
But only a third of China’s surplus was with the United States. And only a third of the American trade deficit was with China.
That tricky math awaits President-elect Donald J. Trump, who will take office on Monday promising tariffs to reduce America’s trade deficits. Raising taxes only on goods from China may do little to whittle down the overall U.S. trade imbalance.
Countries around the world are also running big trade surpluses with the United States — nothing on the scale of China’s, but they are adding up. Other countries need trade surpluses with the United States to pay for their own trade deficits with China.
If the Trump administration raises tariffs only on China, the United States may find itself with bigger trade deficits with other countries as American companies import from them instead. But raising tariffs on imports from a wide range of countries could hit American allies.
Running a very large trade deficit in manufactured goods, as the United States has been doing for decades, has eliminated well-paid jobs and weakened the country’s base for military production. But the big trade deficit also has meant that American consumers have enjoyed low prices. Many consumers may be hesitant to give that up by paying higher prices for imported cars, smartphones and other products if Mr. Trump imposes broad tariffs.
China faces a different problem: its people could enjoy a better lifestyle if its workers produced more for domestic markets and less for exports.
But helping China’s consumers afford more of their own country’s production would require shifting government spending away from the country’s military and security apparatus and state-owned enterprises and toward the meager social safety net. It might also require steps like cutting China’s 13 percent national sales tax, as well as other consumption taxes on imported luxuries, like big American cars. Beijing has been wary of such measures.
In the meantime, China’s extraordinary volume of exports — up more than 12 percent last year — is swamping overall world trade.
“That isn’t sustainable,” said Brad Setser, a senior fellow at the Council on Foreign Relations. “Chinese exports cannot grow by 12 percent when global trade is only growing by 3 percent without cutting deeply into other countries’ export sectors.”
Across Europe, Africa, Latin America, Asia and Oceania, countries depend on buying cars, household appliances, consumer electronics and other manufactured goods from China. To obtain the dollars they need to buy these goods from China, these other countries sell everything from Mercedes cars to cheap T-shirts to the United States.
The European Union, for example, buys $2 worth of goods from China for each $1 of goods that it sells to China. That left the European Union with a $247 billion trade deficit with China last year, while the E.U. ran an estimated $240 billion surplus with the United States.
For developing countries, the discrepancies are even more pronounced, except for a handful of exporters of oil and other natural resources that run trade surpluses with China. African nations as a group buy about $3 worth of goods from China for each $2 of goods they sell to China. They then mostly reverse that ratio in their trade with the United States.
Most of China’s imports are oil and other natural resources. But 98.9 percent of its exports last year were manufactured goods.
Countries with few natural resources to sell end up with especially large imbalances with China. Kenya bought $35 worth of goods last year from China for each $1 of goods that it sold to China. Because Kenya’s trade is roughly in balance with the United States, it has ended up borrowing heavily to raise the money to pay for imports from China and is now heavily indebted, like many developing countries.
The United States Department of Commerce will release final trade statistics for 2024 in early February. But trends in American trade are clear from statistics that cover all of last year except December.
China announced last month that it was eliminating all tariffs for imports from dozens of the world’s poorest countries. But because China is strong in practically every manufacturing industry, eliminating tariffs on imports from the poorest countries may not make much difference in trade flows. Chinese customs officials spoke at a news briefing on Monday about steps like importing more fish and bananas.
If the Trump administration raises tariffs while China is cutting them, many other countries could respond angrily. China has been trying to move beyond its core group of closely aligned nations like Russia, Iran and North Korea to woo developing nations through its Belt and Road Initiative. China has also attempted to earn revenue, and good will, from European and East Asian nations through visa-free tourism programs.
At the root of the difficult choices ahead for China and the United States lies a big difference: savings rates. Households in China are saving more, and spending little on imports, because they have lost much of their net worth after a housing market crash wiped out more wealth than the American housing market crash in 2008 and 2009. But Americans as a whole are saving very little, while effectively borrowing money through big trade deficits with the rest of the world.
Chinese officials and economists say they believe there is a better answer than tariffs: more Chinese investment in building factories in the United States.
But lawmakers in Congress and in state governments have been mostly hostile to that solution, even imposing new legal limits in the past couple years on Chinese investments in the United States.
Li You contributed research.