President Donald Trump is meeting with Chinese President Xi Jinping at Mar-a-Lago Thursday night after months of accusing China of stealing American jobs.
The President says China is manipulating its currency, keeping the yuan artificially low to make Chinese exports cheaper. He says it creates an unfair advantage, that China is "raping" the United States when it comes to trade. Trump has threatened to slap a 45% tariff on all goods imported from China, which economists warn could lead to a trade war and hurt American consumers.
Here are four things you should know about trade with China.
What is the US trade deficit?
A trade deficit is the difference between the value of goods and services that a country imports and exports.
In February, US companies exported $192.9 billion worth of goods and services but Americans bought $236.4 billion in imports, creating a deficit of $43.6 billion. China accounts for three-fourths of that deficit.
China is America's No. 1 trade partner, making up 16% of US trade so far this year. Neighboring countries Canada and Mexico come next on the list.
The United States used to have regular trade surpluses until the 1970s. China, however, has only emerged as a global manufacturing power since the 1990s, as it moved from an insular communist country to a major manufacturing power.
Is it bad for the economy?
A trade deficit isn't necessarily a bad thing, as more imports into the United States might be a signal of a healthy and active economy, with strong consumer spending.
Importing cheap products assembled in China can help the country's overall wealth by enlarging US companies' profits, which in turn contribute to bigger paychecks for high-skilled workers, such as engineers and designers.
America remains a leader in manufacturing globally. But China surpassed the United States in 2010 as world leader in manufacturing output. The United States still shows a surplus in services: a trademark of Western countries, which have shifted to services since the deindustrialization of the 1970s. Many other wealthy countries, including Canada, France and the United Kingdom, have negative balances of trade.
What are the potential risks of a large trade deficit with China?
A long-lasting trade deficit could have some negative implications. When Americans buy imports, it puts dollars in the hands of foreign investors. As those dollars accumulate, it can give those investors power over the fate of the US dollar.
But, contrary to what President Trump has said, China has not been devaluing its currency in recent years.
The yuan has been losing ground to the dollar as the Chinese economy has slowed. Ten dollars were worth 60 yuan in January 2014. Today 10 bucks are worth 69 yuan, which means buying products from China is cheaper now than it was three years ago.
But China is not driving the weakness of the yuan. Instead, it has responded to an economic slowdown by using its surplus of American dollars to buy its own currency. In other words, China is trying to prop up its currency, not devalue it.
The conventional wisdom now is that the Treasury Department won't declare China a currency manipulator, given the lack of evidence to support this. The Trump administration also says it is looking into the causes of US trade deficits and wants to stop large import duty evasion.
Is the US losing jobs to China?
MIT labor economist David Autor estimates the move of manufacturing jobs to China from 2000 to 2007 cost the United States about a million manufacturing jobs. This has been devastating for low-skilled workers, especially in small communities without comparable job openings.
However, trade with China can also create jobs. According to the Department of Commerce, US exports of goods and services to China supported an estimated 251,000 jobs in 2014.
Apple's chief contractor, Foxconn Technology Group, has flirted with the idea of moving jobs back to the United States, but those plants will likely be highly automated. Even in China, Foxconn announced plans last year to eliminate 60,000 jobs and replace them with robots.
One reason there are so many manufacturing jobs in China is because wages there are so low. Consider Nike. It contracts with 151 factories in China, employing 191,000 workers. That's more than a thousand workers per plant. But in the United States, its 51 contract manufacturers employ only 6,500 workers, or slightly more than 100 workers per plant.
In other words, putting a tariff on Chinese goods does not guarantee to reverse the decline in US manufacturing jobs. It would put a heavier burden on American consumers, forcing them to pay higher prices for Chinese goods. Ninety percent of all computers are made in China. The United States also imports appliances, toys, furniture, shoes and sports equipment from China. China, meanwhile, imports American goods, including airplanes, cars and soybeans, according to the 2015 US Census.
Cheap imports from China can actually raise the standard of living in the United States, allowing consumers to buy more goods.
