The Rising U.S. Trade Deficit With China And Why It Wont Go Away

Abstract

During the latter half of 1998, Laura D'Andrea Tyson, former chairwoman of the President's Council of Economic Advisers and economics professor at Berkeley, wrote a highly-publicized commentary that questioned whether China would replace Japan as the antagonist in Americas trade deficit woes. She stated "As the U.S. trade deficit with China continues to increase, concerns mount that China will soon replace Japan as America's major trade headache. Such concerns are fed by an image of China as another Japan - a country pursuing a mercantilist development strategy based on closed markets, an undervalued currency, and a structural trade surplus." Highlighting Japans closed markets, undervalued currency, and perennial trade surplus, Tysons monograph calls into question whether China's trade practices will parallel the manic logic of mercantilism so vehemently practiced by Japan. This paper examines the burgeoning supremacy characteristic of modern Chinas export-oriented trade program and provides useful, suggestive commentary on how U.S. trade policy with China should be handled, drawing conclusively from the Japanese experience. Finally, the causes underpinning the rising U.S. import/export ratio with China will be investigated.