The US-China Trade Deficit

The US trade gap with China hit a record $273.1 billion in 2010 raising fresh fears of a deteriorating trade relationship between the world’s two biggest economies. But a quick look behind the figures suggests that the US economy is enjoying a surge in exports a major stimulus to their recovery hopes.

The raw data is that US goods exported to China totaled $91.9 billion in 2010 while imports from China rose 24 percent to $364.9 billion. In fact that represents a rise in the value of US-China exports in 2010 of more than 31%.

And the true scale of the trade imbalance with China is likely to be much smaller than the conventionally published data suggests.

The globalisation of supply chains means that many manufactured consumer products are made up of components sourced from literally dozens of countries, based on designs and research from others, and brought together for final assembly in one before being sold.

An iPhone made by FoxConn and shipped to the United States counts as an import and is usually valued using country of origin methods - on that basis, last year the millions of iPhones arriving in the States contributed $1.9 billion to the U.S. trade deficit with China. The cost of assembly is about $6.50 per phone. But the total manufacturing cost of each iPhone — about $179 for each handset — is counted toward China’s export totals and millions of iPhones are imported into the States each year.

If China’s iPhone exports to the United States were measured in value added—the value added by China to the components—those exports would come to only $73.5 million. And according to the head of the World Trade Organisation Pascal Lamy, “if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half.”

It is true that China played a role in widening the US trade deficit to record levels in 2010. But so too did surging imports of oil and also a widening trade deficit in food and drink. The export side of the US economy actually looks quite healthy at the minute and President Obama has a chance of reaching his target of doubling the value of US exports by the end of 2013.

Another positive for the US is that their trade surplus for services jumped to a record $148.7 billion in 2010.