The Rabid Independent, Nonpartisan solutions, independent policy ideas

Why does it matter that we have a huge trade deficit with China?

The US trade deficit with China has been exploding since President Clinton granted them MFN status in 1994.  A first world country will never profitably trade with a third world country where there is no minimum wage, no pollution controls, no patent or copyright law, and (especially) no floating currency.  What we get are unbelievably cheap imports which relative to our first world salaries are irresistible  Our trade account goes into massive deficit, our savings rate collapses and consequently our investment rate collapses with it. Us-china-trade-deficit-2006

Everyone understands that in the long run an economy without investment will die.   We have now become dependent on China to fund our profligacy and our economy has become distorted toward non-tradeable goods.  We are now an economy of lawyers, brokers, and plumbers.  As Kevin Phillips has said -" the only thing we have become good at producing is debt."


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