US China Trade Deficit

• $20 Billion trade deficit in 1993
• $526 Billion tradeeficit in 2018 (27x growht)

Causes of US-China Trade Deficit

• China purposely pursued it to generate jobs for Chinese citizens
• Helped China develop and urbanize
• Supported by People's Bank of China
• Chinese Currency devalued by 60% in 1994 and pegged to the dollar
• Dollar peg remained strict till 2004
• Dollar peg strictly held since 2004
• Kept the exchange rate stable, so that Chinese labor was always cheaper - even though China had a huge trade surplesseds
• This Central Bank support stopped the imbalances from correcting
• At the same time the US Federal Reserve pursed inflation in the US
• Alternative of delfation would have helped the US compete with China and reduce the Trade Deficit
• Ultimate the huge deficit spurred trade wars in 2018