US trade deficit hit a record in 2021 as China gap widens

  • Surging demand from American consumers, reined in during the pandemic shutdowns, helped drive imports from China
  • A Trump-era trade deal aimed at closing the trade-in-goods gap fails to reverse the course

The US trade-in-goods deficit with its global trading partners expanded last year to a record US$1.1 trillion, with China accounting for about one-third of that amount despite a long-standing dispute aimed at closing the gap, data from Washington shows.

The past year’s goods-only deficit with China reached US$355.3 billion, lower only than US$418.2 billion in 2018, the US Commerce Department reported on Tuesday. A US $859.1 deficit in overall trade, including goods and services, set another record.

The widening deficit follows an effort by former US president Donald Trump to narrow the gap – which he called “unfair” – through tariffs imposed on Chinese imports beginning in 2018.

Demand from American consumers, who were reined in during the 2020 pandemic shutdowns, and a restart of production among US manufacturers drove imports from China, analysts say. China makes popular items such as clothing, electronics, medical equipment and auto parts. The US economy grew by an outsized 5.7 per cent in 2021.

“The US trade deficit widened significantly in 2021, and the deficit with China contributed to that,” said Charles Seville, co-head of Americas sovereign credit ratings at Fitch. “A wider US trade deficit reflects a surge in US spending on goods.”

The Sino-US trade deficit missed its 2018 peak “partly thanks to recent growth in US exports to China”, Seville said. Exports totalled US$151 billion in 2021, up from US$124.5 billion the year before.

The trade dispute saw tariffs placed on a total of US$550 billion worth of goods, including US$350 billion originating in China. The dispute further strained wider two-way relations and has extended into President Joe Biden’s administration.

China got another boost because Covid-19 outbreaks disrupted export-reliant peers in Southeast Asia such as Malaysia and Vietnam, said Rajiv Biswas, Asia-Pacific chief economist with IHS Markit in Singapore.

Rampant illnesses in Malaysia isolated workers from factories, he noted, while Vietnamese workers went home during third-quarter lockdowns before coming back in the final three months of the year. Vietnam is a traditional source of textiles, clothing and auto parts, while Malaysia ships electronics.

“Partly it’s demand-side issues, which the US is very strong in, and partly supply-side issues that are pushing exports from China,” Biswas said. In Southeast Asia, he said, “many factories were shut down for period of the third quarter and it was very disruptive.”

US tariffs on Chinese imports had little impact because demand had shifted so markedly to China in late 2021, he added.

A US-China trade agreement signed in January 2020 as an initial answer to the dispute expired on December 31. China met just 57 per cent of an import-purchasing goal specified in the deal, Chad Bown, a senior fellow at the Washington-based Peterson Institute for International Economics, said on Tuesday.

Covid-19 lockdowns and a brief recession contributed to trade agreement shortfalls, Bown said. Major American manufacturing sectors such as automotive and aircraft production “could not reverse their poor export performance in 2020–21” and failed to resume exports in 2021, he added, while both governments show “bad faith”.

Author: Ralph Jennings, SCMP

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