China is an easy target, but is not the cause of large US trade deficit

Yukon Huang posits in Bloomberg that Casehina’s monetary policy is not the driving force behind the US trade deficit. In fact, he says, this belief is countered by the differences “in the timing of changes to both countries’ trade balances.”

“The U.S.trade gap began increasing in about 1998 and peaked around 2005. China’s trade surpluses only began increasing around 2005 and peaked in 2008. This suggests that U.S. deficits and China’s surpluses are not directly related but actually reflect country-specific circumstances,” Huang notes.

Instead, he says that a higher import demand, which is fueled by increase in American consumption and fiscal deficits, is one cause. The other two factors are: a maturing East Asian production network centered on China and the ratcheting-up of China’s savings rates.

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