Ballooning U.S. trade deficit with China a new source of friction


BEIJING -- While the United States reduced its worldwide trade deficit in 1990 to the lowest level in seven years, its trade shortfall with China ballooned by almost 70 percent -- providing a new source of friction in Sino-American political relations.

The U.S. Commerce Department said Friday that the United States'overall trade deficit last year fell to $101 billion, the smallest deficit posted since 1983. As part of that improved trade picture, the U.S. trade deficits with Japan and Taiwan -- its two largest deficit-trading partners -- also fell last year.

During the same period, however, the U.S. trade deficit with China increased so rapidly that China surpassed Germany to become the nation's third-largest deficit trading partner. Projections indicate China will soon bump Taiwan from second place.

Last year's U.S. trade deficit with China totaled about $10.4 billion, the commerce department said, up from deficits of only $6.2 billion in 1989 and $3.5 billion in 1988.

This represents a tripling of China's annual trade surplus with the United States in just the last two years.

China built this favorable trade position by tightening central government controls on imports and increasing exports to the United States last year by about 30 percent.

The United States is now the largest consumer of Chinese exports in the world.

But the Commerce Department recently alleged that China has been illegally sidestepping U.S. import quotas on garments and textiles by exporting these goods via third countries where they are relabeled. There also have been concerns that China possibly has been dumping some goods -- selling them below cost to increase market share -- in the United States.

All this has come about even as China's "most-favored nation" (MFN) trade status with the United States has been under fire from some congressmen concerned about China's human rights abuses.

Now some analysts believe that the backlash from the trade deficit -- and from the recent jail sentences handed out to the alleged leaders of the 1989 Tiananmen Square protests -- could provide enough votes for a congressional veto of a likely administration move to renew China's MFN status in June.

Though such a veto remains more of a threat than a strong possibility, friction over trade does appear to be moving more toward center stage of the two countries' relations.

Toward the end of this month, Joseph Massey, the assistant U.S. trade representative responsible for Asia, is expected to come here for direct talks with Chinese officials, U.S. diplomats said here last week. China's trade surplus and China's alleged evasion of U.S. import quotas will be among the topics discussed.

The Commerce Department recently acted on the import quota allegations by cutting 500,000 dozens of sweaters from China's import quotas this year. A second reduction of another 500,000 dozens of garments reportedly is under consideration.

In response, China late last month threatened to retaliate by "adopting corresponding measures" against U.S. exports, without specifying those measures.

Resolution of Sino-American trade problems has been made more difficult by the way China has been accounting for its trade with the United States:

China excludes from its U.S. trade data the large amounts of Chinese goods exported to the United States through Hong Kong, while the United States includes Hong Kong trans-shipments in its trade figures. China thus can claim that, rather than enjoying a trade surplus with the United States, it actually had a $1.4 billion trade deficit with the nation last year.

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