The trade balance in December came in at a whopping $65.70 billion, well above the $64.8 billion estimate and setting another record. The White House is obviously not happy about this, especially in relation to its growing and massive trade deficit with China.
For the period from January to December 2005, China was the third largest trading partner with the United States following Canada and Mexico, where both have benefited from the North American Free Trade Agreement. Canada is not a concern as the U.S. exported $211.3 billion of goods and services to Canada in 2005, $76.6 billion less than it exports. Mexico’s export-import difference was $50.2 billion in net imports.
But, in the case of China, the export-import difference was a whopping $201.70 billion in net imports. The U.S. exported a mere $41.8 billion of goods and services to China in 2005 while importing $243.5 billion. This fact clearly has the White House up in arms.
There continues to be a concerted effort to raise the duties on Chinese goods or other punitive punishments in order to try to reduce the Chinese imports and lessen the deficit.
U.S. senators, Democrat Charles Schumer of New York and Republican Lindsay Graham of South Carolina, want to impose a 27.5% tariff on all Chinese goods. This strategy makes some sense for helping to protect U.S. jobs, but while extremely important, this strategy also increases prices for goods and services paid by consumers. In this way, it causes an import of inflation as prices rise, not something that is desired.
The reality is that the cost of many goods has been declining over the past several years and this has helped the American consumer. From electronic goods to furniture to clothes, the fact is the current trend of cheaper Chinese imports actually increases the standard of living for Americans and this is good. While I do not have a remedy for the lost jobs, I do know that Americans are greatly benefiting in an area that is important–that is spending. And, since consumer spending accounts for about two-thirds of the economy, rocking the boat may prove hazardous. This potential outcome must be considered before nailing China with all kinds of tariffs and other trade punishments.