Why China matters in Trump’s economic policy
President-elect Donald Trump’s threats to impose big tariffs on China have put that country in the global spotlight. Trump says he wants to bring back American factory jobs but economists say his tactics could result in a trade war that ultimately hurts the United States. Economics reporters Roger Yu and Paul Davidson try to sort it all out.
Q: How did China become the second-largest economy in the world and so intertwined with the U.S.?
With a population of nearly 1.4 billion, China is the world’s largest country. It has taken advantage of its bountiful labor force to fuel an export-oriented economy. In short, it became richer by transforming itself into the world’s factory. American companies fully exploited the opportunities, rushing to outsource manufacturing there.
The result was a burgeoning middle class in China that formed a new export market for American products. More Chinese students can now afford to study in the U.S., often forming the largest international student group at prestigious universities. Chinese tourists pack American hotels in major cities. And the Chinese government began investing heavily in U.S. Treasuries. China is now America’s largest debtor.
Q: What is a trade deficit and why has our trade deficit with China widened?
A trade deficit occurs when a country’s imports of goods and services exceed its exports, or goods and services shipped “abroad.” The U.S. trade deficit across the globe totaled $531.5 billion in 2015, up from $508.3 billion a year earlier. In other words, Americans consume more foreign goods and services than the country ships overseas.