Advertisement
US-China relations
OpinionWorld Opinion
Stephen Roach
Stephen Roach

Opinion | US trade policy towards China is dangerously incoherent

  • US political leaders have resorted to playing the blame game to convince voters they are fixing the trade deficit
  • But, by going after China, they are ignoring the root of the problem – the federal government’s unchecked spending – while increasing the risk of a full-blown superpower conflict

Reading Time:3 minutes
Why you can trust SCMP
9
US President Joe Biden speaks during the Asian Pacific American Institute for Congressional Studies gala in Washington on May 14. US tariffs on Chinese goods, pursued under both Republican and Democratic administrations, will do little to curb the US federal deficit if government spending remains unchecked. Photo: Bloomberg
Stephen Roach
The United States does not have a coherent trade policy. It has a political strategy masquerading as trade policy that has taken aim at China, and China has responded in kind. With the two superpowers drawing on their allies for support, economic decoupling is the least of our problems.
Advertisement
It is easy to blame US presidents Donald Trump and Joe Biden for this unfortunate turn of events – Trump for firing the first shot in the Sino-American trade war and Biden for doubling down on protectionism, yet the problems predate both presidents. They stem largely from a decades-long misunderstanding of the role foreign trade plays in open economies.
Politicians tend to see trade balances in black and white: surpluses are good, deficits are bad. For the US, trade is viewed as bad – a source of leakage in an otherwise strong economy that puts pressure on jobs, companies, communities and incomes.
From this perspective, the US sees itself as the victim of others’ transgressions. Japan was the culprit in the 1980s. Now it’s China. US leaders also blame the World Trade Organization, which they have effectively neutered by blocking appointments to its Appellate Body for the past five years.

Blame is about politics, not economics. Students of economics are taught almost immediately to respect a basic premise of national income accounting: that a country’s trade balance is equal to the difference between investment and saving. It follows that any savings-short economy wanting to invest and grow must borrow surplus savings from abroad, which requires balance-of-payments and trade deficits with the rest of the world.

This conceptual framework fits the US economy to a tee. In 2023, the US net domestic savings rate – the combined depreciation-adjusted savings of individuals, businesses and the government sector – was negative, at minus 0.3 per cent of national income. This has happened across multiple quarters only once before: during and immediately after the global financial crisis of 2008-09.

loading
Advertisement