Analysts at BNP Paribas notes that China’s trade surplus with the US has narrowed as a percentage of Chinese GDP but this masks the fact that in USD terms, it is around USD 100bn larger than in 2009 and as a percentage of US GDP, the Chinese surplus is larger than in the pre-crisis period.
“The fact that the surplus has remained in place despite a significant appreciation of the RMB in real terms since 2011 and the US economy operating below potential for much of this period highlights the structural nature of the imbalance.”
“China’s restructuring away from manufacturing and towards a more service-oriented and domestic-demand-focused economy is a step in the right direction in terms of correcting the imbalance, as is cutting excess capacity in certain manufacturing sectors. But boosting investment demand through excessive credit expansion could lead to longer-term debt issues. It seems to us that raising consumption relative to incomes is a key area for focus.”
“Structural reforms are, however, taking longer than desired and the new US administration appears to be less patient than its predecessor. Nonetheless, US–China trade imbalances may be better tackled by increasing US exports to China, encouraging more Chinese investment in the US manufacturing sector and addressing China’s currency regime, rather than by imposing trade restrictions. With President Trump and President Xi Jinping scheduled to meet in April, the issue is likely to be discussed soon.”