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The truth about China’s surplus? There isn’t one

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When Donald Trump complains about China’s trade practices, he inevitably points at China’s monster trade surplus with the United States as evidence the Chinese are cheating.

At first glance, it looks as if the US president might have a point. According to US Census Bureau data, over the 12 months to October China ran a US$410 billion merchandise trade surplus with the US – the biggest such imbalance on record.

But to focus on China’s bilateral trade surplus with the US is misleading. Viewed in broader terms, China’s trade imbalance shrinks. Over the same period its overall goods trade surplus with the world was US$360 billion.

And viewed in the broadest terms of all, it disappears altogether. Over the first nine months of last year, China actually ran a current account deficit.

In effect this means China was running an overdraft with the rest of the world.

This deficit may not last; there are good cyclical reasons to think China’s current account is likely to swing back into a small surplus this year.

Nevertheless, the shift which has seen China’s current account balance shrink from a surplus equal to 10 per cent of its gross domestic product 10 years ago to near zero today is a major structural change which will have far-reaching implications for the global economy.

Most observers, including Trump, have yet to get their heads around this change. The majority still think of China as a surplus country.


© South China Morning Post