How Trump’s must-do trade deficit fix attempts will affect China

Too much attention is paid to what Trump might want to do as president — and not enough to what he (or any American president) must do.

Over the past 30 years, chronic trade deficits have given the United States a disproportionately high share of world import demand. The United States finances its trillion-dollar trade deficit each year by selling assets (mostly corporate stocks in recent years). Some might say that Trump places too much emphasis on the US trade deficit, or that his preferred solution (tariffs) may not be the best way to solve the problem. But what is unsustainable must come to an end. The United States must change its behavior, and this will have important implications for China.

The US current account deficit of $800 billion corresponds to the trade surpluses of Japan, China and Germany with the US. To be sure, China’s direct exports to the US have fallen from 8% of GDP in 2007 to just 2.3% last year (in dollar terms). Today, China exports more to the global South than to all developed countries combined, but a large part of China’s exports to the global South are dependent on those countries’ exports to the US.

The United States has the largest current account deficit among the above countries. The vertical axis is the data for 2023, in billions of US dollars .

The U.S. net foreign investment position, the difference between foreign assets owned by Americans and U.S. assets owned by foreigners, is now negative $24 trillion, compared with negative $18 trillion when Trump left office. Meanwhile, the federal debt has grown to $35 trillion, larger than the nation’s GDP. Both trends reflect the Biden administration’s failed policy of borrowing to stimulate consumption and trigger massive imports. Under