China's trade surplus

The US trade deficit with China for June and July 2010 was $25.9 billion and $26.2 billion respectively. This represents 60% and 52.6% of the total US trade deficit of $42.8 billion and $49.8 billion for the same periods. The September 2010 figure was $16.9 billion. For 2004 & 2005, the US deficit was $160 billion and $201 billion respectively. That for 2006 was about $230 billion. China’s share of US imports was 14.6% in 2005.

This trade imbalance is making the US very angry with China. They see the Chinese export as a threat to some US industries and also its manufacturing employment. They alleged that China is dumping its exports at below cost and engages in currency manipulation to gain an advantage in the export market.

China is the world’s largest exporter. It exports earned a total revenue of $1.2 trillion in 2009. Its trade surplus for 2008 and 2009 are $297 billion and $198 billion respectively. For 2010, it is expected to net a surplus of about $160 billion. Exports of goods and services constitute about 40% of the GDP.

What does China exports? Its major exports are office machines and data processing equipment, telecommunications equipment, electrical machinery and apparel and clothing. But, many of these products are ‘value-added manufacturing’ where components are imported from several East Asian countries and assembled in China and then re-exported. China’s value add to the products is only 20%. In the mid 1990s, the value-added trade made up about 55% of total China exports. This means China’s net trade surplus should be only about 56% of its reported figure. Consequently, its trade surplus with the US should be correspondingly lower too.