The United States’ Trade Deficit and China

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The United States’ trade deficit declined sharply in February as imports from China fell by a record amount and American exports rose for a third straight month. The deficit fell to $43.6 billion in February, 9.6% below January’s deficit of $48.2 billion, the Commerce Department reported Tuesday.

The small rise in exports in February was led by the United States’ autos and autos parts, which climbed 1.5% to the highest level since July 2014. Exports of petroleum products were up 8.6%. These gains helped offset declines in exports of commercial airplanes, farm products and industrial engines.

American manufacturers have struggled for more than a year with economic weakness in major export markets and a rising value of the dollar, which makes United States’ goods less competitive on foreign markets. However, economists, including myself, believe both of those trends may ease in 2017, helping to lift the fortunes of American exporters. This is due to high confidence in the United States’ economy (have you seen the DOW or S&P500 since November 8th 2016?) and the tax reform Trump is trying to push.

President Donald J. Trump, who was sharply critical of Chinese trade practices during last year’s presidential campaign, will hold his first meeting with Chinese President Xi Jinping later this week in Florida. In a tweet last week, Trump said that his meeting at Mar-a-Lago with the Chinese leader would be “a very difficult one in that we can no longer have massive trade deficits and job losses.”

During Trump’s campaign, he attacked China for pursuing unfair trade practices such as manipulating its currency to increase export demand. He said that if China did not reform, his administration would impose punitive tariffs on Chinese imports. However, Trump has not followed through with those threats. His meetings with Xi on Thursday and Friday could prove pivotal in determining the United States’ future course of relations with China.

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