The U.S. Trade Deficit
"In the 1970s and 1980s, the U.S. federal budget deficit soared, savings regularly exceeded investment, and the foreign trade balance moved deeply into the red" (Wang 2013, 10)
The trade deficit with China has continuously existed since 1985, and greatly increased in the 1990s and especially in 2001 with China's entry to the WTO.
Should I be concerned about the trade deficit?
Many officials disagree about how to solve the trade deficit, and many economists assert that the trade deficit isn't even a problem that needs to be solved. For example, President Trump has stated that "trade deficits hurt the economy very badly" and his senior advisor on trade and industry, Peter Navarro, "believes that the deficit threatens national security in that the United States depends on foreign debt and foreign investment to finance it" (Chatzky and McBride 2019).
Contrastingly, it is a non-issue in the eyes of economists. Although the trade deficit means that the US is spending more than it is selling in terms of goods, the "bilateral trade balances reflect international comparative advantages and consumer preference" (Wong 2013, 10). When the U.S. has a stronger economy, then consumers have more to spend and have greater variety from which to choose; usually, consumers prefer goods from abroad, which adds to the trade deficit.
Export vs. Service Economy
The U.S. is a service economy and China is an export economy. American manufacturing industries have been declining since World War II, when the share of U.S. employment in the industry was 39%. In June 2015, it was 8.6% (Autor, Dorn, and Hanson 2016, 206). Now, the U.S. has an abundance of highly skilled labor, which attributes itself to service-based jobs, whereas low-skilled labor is associated with manufacturing and factory jobs.
Scholar Dong Wang summarizes the important consideration about America's service economy: "The continuing U.S. advantage over China in commercial services must be considered...such as data-processing, banking, accounting, insurance and education, legal counsel, management consulting, royalties and license fees, telecommunications, and transportation and travel" (Wang 2013, 12).
It is difficult to account for "the rapid growth of the digital economy and the new types of jobs it created" and therefore there is an overemphasis on traditional manufacturing industries (Chatzky and McBride 2019).
Many people believe that China has stolen the manufacturing jobs from Americans, but a study by Ebenstein, Harrison, and McMillan in 2015 assert otherwise. Their results indicate that the decreased U.S. labor force in manufacturing were associated with "computer use rates or increasing capital intensity, and that offshore activities to China or elsewhere played a very small role" (Ebenstein, Harrison, and McMillan 2015, 27).
An example: How the iPhone adds to the deficit
Economists Yuqing Xing and Neal Detert authored a paper that was published in the Asian Development Bank Institute titled "How the iPhone Widens the United States Trade Deficit with the People's Republic of China." This study demonstrates the complexity of the trade deficit and that politicians should consider the tangled production networks when analyzing and forming policies regarding the trade deficit.
All iPhones are designed and marketed in the United States by Apple, but the majority of the production occurs outside of the U.S., meaning that "all ready-to-use iPhones have been shipped to the U.S. from the PRC" (Xing and Detert 2011, 340). Thus, something that is generally considered an "American product" is actually imported from China.
Detert and Xing assert that if iPhones were assembled in the U.S. instead of China, the "$1.9 billion deficit in iPhone trade with PRC would not exist. Moreover, 11.4 million units of iPhones sold in the non-US market in 2009 would add US$5.7 billion to US exports" (Xing and Detert 2011, 347). Though this hypothetical would probably positively affect the American economy, it is not Apple's responsibility to stimulate American exports.
Apple is a firm that utilizes global opportunities and makes calculated, rational business decisions in terms of cost-effective production. Though a high-tech American designed product like Apple's iPhone is considered an American product, it still contributes to the trade deficit.
