THE WASHINGTON POST: The trade deficit with China is a problem — but not for the reason Trump thinks




April 7 | By:

There are many potential sources of conflict between the world’s two largest economies. But President Trump has forecast that his meeting Thursday and Friday with Chinese President Xi Jinping would be a “very difficult one” for a particular reason: Trade deficits.

Trump has long been focused on the trade deficit, the excess of imports over exports, as a sign of failing U.S. competitiveness abroad. In the past, he has proposed a variety of trade-related fixes, including protective measures like taxes on foreign imports.

But that strategy is unlikely to lessen the U.S. trade deficit with China, and it could actually backfire, economist Michael Pettis says. Pettis, a professor at Peking University and a senior fellow at the Carnegie Institution who is one of the leading voices about global imbalances in the flows of trade and capital, says that the U.S. trade deficit is a problem — but not for the reasons that Trump, Bernie Sanders and other critics seem to think. The key, Pettis says, is that the trade deficit is due to a deeper problem, which is imbalances in the flow of international investment. In his view, this is an issue that China could fix, but which the United States is ultimately powerless to do much about.

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