🆕"Post-Trump US-China relationships" (AAAB Feb 2021 News)

Considering total trade (the dollar cost of goods and services exported plus the dollar cost of goods and services imported) China is the US’s largest trading partner. In 2019 the US exported $163B and imported $471B of goods and services to/from China. In other words, there was a difference (the “Deficit”) of about $309B between how much the US bought from China versus what China bought from the US. The US’s trade deficit with China has generally been increasing over the past couple of decades.

What’s the big deal?

If a country has a lot of US Dollars, it can invest them in US Treasury Bonds. When a country invests in US Treasury Bonds it becomes a creditor (a bank) to the US. Japan is the US’s largest creditor, with China a close second. Consider your relationship with your bank and you can see why this can be important. In theory, if a country is a big enough creditor, it can affect the US Treasury Bond market and cause US interest rates to increase or decrease. This in turn can affect the US economy. Imagine for a moment what would happen to the US housing market if instead of being in the range of 4% for a 30-year mortgage, the rate was 8%. The great recession of 2008 demonstrated what the side effects of a bad housing market can do to the economy.

With the above as a backdrop, it makes clearer why many are concerned about the US’s trade deficit with China. In theory, every dollar of deficit potentially increases China’s influence over the US economy. President Trump claimed that the reason the US-China deficit was so great was because China was not playing fair. That it sold goods to the US at low prices because the government could control wages and other costs of input for goods and services traded with the US. In addition, the claims continued, that because of the unfairly low wages, US jobs were migrating to China which weakens the US. Good or bad, President Trump was a man of action, and initiated a series of trade sanctions that made it harder for both countries to trade.

Now that President Trump is gone, will these types of claims and more importantly actions stop? It doesn’t look like it so far.

Janet Yellen, the new Treasury Secretary said just last week, "We need to take on China's abusive unfair and illegal practices," adding "we're prepared to use the full array of tools" to address those issues. Granted, she’s not the President and doesn’t control Congress, but her words don’t seem that different from those of President Trump.

So, what do I think the US’s stance with China under the new administration will be? I don’t know. I do believe though that if one can hang out long enough, things have a way of working out. If it’s true that China is unfairly manipulating and lowering the cost of goods, China’s population will figure it out and do something about it someday (remember the fall of the Soviet Union). If it’s not quite as bad as the Treasury Secretary says it is, that will show itself too.

The US’s relationship with China is deeply integrated and very important. When the US hiccups China feels it and the other way around. If our representatives understand this, I think agreements that are beneficial for both countries are possible.

William "Goose" Changose, J.D.
AAAB Borad Director, Attorney at Natural State Law, PLLC

FEBRUARY 2021 NEWSLETTER