Tackling America’s growing trade deficit with China has dominated the country’s political and economic arenas and forums for decades. Despite the various divergent suggestions and opinions on how to tackle it, there is consensus that it is nearing unsustainable levels. One of the suggestions put forth to tackle the ever growing trade deficit that threatens America’s economy is imposing of higher imports taxes on Chinese goods. Supporters of the legislative move argue that this will make Chinese goods more expensive thereby encouraging consumption of American-made goods. First put forward in 2007 as a legislation, the measure has been criticized for its negative effects on the global trade arena, consumer goods prices in the U.S. and profit margins of American businesses that rely on Chinese labor and technology to produce some of their goods (Trumbull n.pag).
There have also been suggestions to weaken the value of the dollar and adoption of other currencies in the country to encourage export of American goods to offset the country’s trade deficit. However, this may encourage other countries to follow and spark a destructive currency and trade wars that may eventually affect the global market (Trumbull n.pag). Others have suggested that American households and the government should spend less and save more. This will reduce importation as well as borrowing from overseas countries including China. However, such an approach is not plausible due to the liberal and capitalistic nature of America’s economy. Other commentators have suggested that the government introduce a tax targeting capital inflows into the country. This will make more expensive to borrow from overseas. On the downside, such a move would reduce investment while increasing asset prices in the country (Freund n.pag).
Tackling the country’s trade deficit requires a combination of measures including increase in domestic saving through decreased consumption and taxation of capital inflows. Increasing of tariffs on Chinese imports and offering of trade subsidies to companies, when combined with these measures, will also ensure that the local consumers and businesses are protected.
Trumbull, Mark. How to tackle trade deficit with China. The Christian Science Monitor, 22 May 2007. Available from: https://www.csmonitor.com/2007/0522/p03s03-usec.html
Freund, Caroline. Three Ways to Reduce a Trade Deficit. Peterson Institute for International Economics (PIIE), 6 Nov. 2017. Available at: https://piie.com/blogs/trade-investment-policy-watch/three-ways-reduce-trade-deficit