US trade deficit failings can'

By He Weiwen

On Monday, 130 US congressmen sent a letter to Timothy Geithner, US Secretary of Treasury, demanding the latter label China as a currency manipulator in its semi-annual report next month.

The letter alleged that "US exports to the country cannot compete with the low-priced Chinese equivalents, and domestic American producers are similarly disadvantaged in the face of subsidized Chinese imports."

The letter threatened to impose heavy duties on Chinese goods if China fails to revalue the yuan.

The allegations about the yuan-dollar exchange rate, from Charles Shumer's bill to the current letter, have one point in common: None of them could tell the accurate margin of yuan undervaluation, if any, or give accurate figures on the alleged distortion on China-US trade.

Do these alleged distortions really exist? According to data from the US Department of Commerce, from which all the following figures are drawn, in the seven years from 1998 to 2004 when the yuan was pegged to the dollar at 8.28, China's exports to the US varied drastically from year to year.

Exports grew by 22.3 percent in 2000, but slowed to 2.2 percent in 2001 and picked up again to 22.4 percent in 2002, all with the same exchange rate. US exports to China fell by 7.9 percent in 1999, but turned to a sharp growth of 23.4 percent in 2000, also with the same exchange rate. All these demonstrate that the exchange rate did not play a role.

In the subsequent four years, from 2005 to 2008, when the yuan moved up against the dollar by 21.2 percent, US export growth to China even slowed down: from 31.3 percent in 2005, 30.3 percent in 2006, to 17.3 percent in 2007, and 10.8 percent in 2008.

Interesting enough, the average annual growth rate (22.6 percent) was almost the same as during the 2000-04 period (21.5 percent). Obviously, the exchange rate alone is not enough to explain this.

In 2009, when the yuan was pegged to the dollar again at 6.83, US exports to China fell only by 0.23 percent, while China's export to the US fell by 12.2 percent. Again, China did not benefit from this pegged rate.

If we go back to 1997, the year before the yuan was pegged to the dollar, and compare US-China trade with US-world trade patterns, a very clear picture appears.

During the 12 years, US exports to the world grew by 53.7 percent, while its exports to China grew by 443.4 percent, eight times as fast; US imports grew by 79.0 percent from the world as a whole, but 373.9 percent from China, or 4.7 times as fast.

It shows that US exports to China outperformed its imports from China, and China outperformed the rest of the world as a market destination. It also shows that US exports to and imports from China during the 12-year period grew at roughly the same relative pace, with exports faster than imports.

How can US politicians then say that the yuan is undervalued, or that "the US exports to the country cannot compete?" And how can they say that "domestic American producers are similarly disadvantaged?"

The US official data shows that, in 2009, US exports to China fell by a slight margin of 0.23 percent.

But the rate varied considerably within different categories. Electrical machinery fell by 16.6 percent, and machinery by 10.5 percent; oilseeds, however, grew by 27.2 percent, and airplanes even shot up by 36.5 percent.

The question then is: How can one explain the different performances with the same exchange rate? Again, the yuan exchange rate is not a factor.

According to China customs data, China had a trade surplus of $143.37 billion with the US in 2009, but a deficit of $33.03 billion with Japan. They all faced the same yuan, and the yen even appreciated by 16.3 percent again the yuan during the year while the dollar remained unchanged. How can one explain this contrast?

More convincingly, Japanese exports to China hit $130.94 billion in 2009 while the US exports to China were only $77.44 billion, half of those of Japan. This was despite the US economy being nearly three times bigger than Japan's.

Japan's ability to maintain a trade surplus with China, while the US runs a deficit, shows that the problem is not the fault of an undervalued yuan, but the US own failings. Other statistical evidence supports this, showing the unfounded nature of the recent accusations.

The author is director of the Study Center for China-US Economy and Trade, University of International Business and Economics. forum@globaltimes.com.cn