South-Westerns' Economic News Summaries
Open Up a Little Wider, America
Topic International Trade
Key Words Imports, Exports, Trade Deficit

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Reference ID: A143047627
News Story

For every one dollar in goods shipped from the United States to China, six dollars worth of Chinese goods come into the U.S. As this import-to-export ratio continues to rise, more Washington politicos seek ways to reduce the surging U.S. trade deficit.

The U.S. might consider using protectionist tools to reduce the trade deficit between the U.S. and China-such as implementing import quotas, which would place an absolute physical limitation on the quantity of a product that could enter the country. Lawmakers may also consider using tariffs, which are taxes placed on goods when those goods cross an international border.

Protectionism itself is a highly charged political issue with import-competing industries asking for protection, while exporting industries often prefer free trade.

The United States' trade gap with China widened in January to $17.9 billion--a 10 percent increase from the previous month. Over all, the United States imported $68.5 billion more in goods and services from other countries around the world than it exported. Even though a stronger global economy has resulted in increased U.S. exports in some sectors, imports continue to outpace exports--hence the growing trade deficit.

Many in Washington argue that the Chinese currency-the yuan--is undervalued and thus causes harm to the U.S. economy. By keeping the Yuan's value low relative to the dollar, Chinese goods become relatively cheaper and American goods become relatively more expensive. Across the board, from textiles to steel to pirated movies, more American companies are affected by the low prices that Chinese firms charge for their products-even those products that violate intellectual property laws in the U.S.

With mid-term Congressional elections approaching in November, more and more lawmakers are lining up to retaliate against China's trade and currency practices. "Members of Congress, on a bipartisan basis, are expressing serious concerns that China's national currency is undervalued and causing harm to the U.S. economy and sending American jobs overseas," said Representative Nancy Pelosi of California, the House Democratic leader.

Lindsey Graham, Republican of South Carolina, and Charles E. Schumer, Democrat of New York, are pushing legislation in the Senate that would impose a 27.5 percent tariff on all imports from China unless Beijing allows its currency's value to rise substantially to more realistic levels, making Chinese exports more expensive and hence less competitive with American goods.

President Bush will likely veto such a tariff, but Mr. Schumer said that he was convinced that "there would be enough votes to override a presidential veto"-- 2/3 in both the Senate and the House of Representatives.

Many economists say that, in the end, the bilateral deficit with China needs to be put in a global perspective. Even a sharp appreciation of the Chinese currency against the dollar would only shift some goods from one market to another. This argument suggests that, even if the Yuan appreciated against the dollar and made Chinese goods relatively more expensive, Americans would simply buy what would then be relatively less expensive substitutes from countries other than China and the trade deficit would remain. "If we don't have a [trade] deficit with China," said Glenn Hubbard, once President Bush's Chief Economic Adviser and now the dean of the Columbia University Business School, "we'll have a deficit with someone else. "


Discuss some of the protectionist measures available to American lawmakers to reduce the trade deficit with China. Which do you think is most fair or effective?

2. How does the undervaluation of the Yuan in relation to the dollar add to the trade deficit?
Source Keith Bradsher, "As Trade Deficit Grows, So Do Tensions With China", The New York Times Online, March 10, 2006.
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