US Trade Deficit with China Is Starting To Rise Again

While it had decreased during the COVID-19 pandemic, the trade deficit has returned. Joe Biden’s stimulus plan could prompt businesses to resort to imports in order to respond to demand.

The bone of contention between Washington and Beijing has not disappeared. Sanctions against China, the politics of Donald Trump and the effects of the pandemic have certainly reduced America’s trade deficit with its rival, but the balance is still significantly to Beijing’s advantage.

The progressive reopening of the United States since last summer has brought the deficit back to the level at which it was before the pandemic. Borders have reopened and businesses, which have had to cope with a degraded supply chain and stable consumption, have had to turn toward imports in order to respond to demand. In the first two months of the year, the balance of payments still showed a deficit of more than $50 billion to the detriment of the United States.

Chinese Imports Increase

Beijing has, however, increased its purchases of American products, as it had promised to do on completion of the accord signed with the Trump administration. Chinese imports of American products even reached a record in the first quarter. At the beginning of 2021, Beijing met 76% of the target, according to the Peterson Institute for International Economics, of which 80% of the purchase commitments were energy-related. The pandemic has, however, modified the two partners’ plans: Total Chinese imports approached $100 billion last year, as against $173 billion provided by the agreement.

According to some economists, the growth of the American trade deficit is expected to continue. Biden’s stimulus plan should give a further boost to consumption, and several sectors eroded by the pandemic aren’t ready to respond to demand. China, whose industrial base has rebuilt very quickly, is better placed to benefit from this breath of air. And it will be nearly impossible for the United States to implement its “Buy American” plan in the short term. Most of the measures adopted involve assistance that will take months to arrive and public contracts.

A Diplomatic Approach

According to the China Beige Book, the $1.9 trillion stimulus launched by the Biden administration should give a boost to the American trade deficit with China of an additional $30 billion this year.

The Biden administration nevertheless retains the goal of reducing its deficit with China, even if the American president proclaims it only as strongly as his predecessor. Biden wants to do it with an entirely different strategy: For him, it is a question of renewing alliances with his western partners in order to compel Beijing to change its trade practices. A subject on which his administration has, thus far, made little progress …