Macroeconomic Fundamentals Drive China-US Trade Imbalance, IMF Economists Say
Understanding the Trade Imbalance Between China and the US
The recent report from the International Monetary Fund (IMF) highlights that macroeconomic fundamentals are primarily responsible for the trade imbalance seen between China and the United States. Economists, including Pierre-Olivier Gourinchas and Rodrigo Valdés, argue that the tendency to link trade to industrial policy is misleading and reflects an incomplete understanding of the underlying issues.
Tariffs and Trade Relations
Tariffs imposed by Washington aim to mitigate the perceived overcapacity in China's market, particularly concerning electric vehicles (EVs). This interaction has significantly raised tensions, with China experiencing a robust trade surplus over the past few years, partly due to the industrial sector’s growth spurred by government policies.
- China’s domestic demand faced negative shocks.
- Government and personal spending in the US contributed to a dissaving shock.
The Role of Domestic Demand
According to the IMF, the issue is exacerbated by a downturn in China's property market and low household confidence. Notably, China’s export growth has persisted, with incoming data showing an increase in exports and limited growth in imports.
Recent Developments
- The EU has already enacted additional tariffs on Chinese-made EVs.
- Canada plans to impose tariffs on various products from China.
The IMF urges transparency in China's subsidy policies, citing significant implications for global trade stability and the need for better data to inform policy measures.
This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.