US and China: Knowledge Deficit or Trade Deficit?

The problems with headlines such as this: “US Trade Balance With China Improves, but Sources of Tension Linger” are twofold. 

https://www.wsj.com/articles/u-s-trade-deficit-narrowed-in-december-as-exports-outpaced-imports-11612532757

A: It furnishes support to the notion that trade surpluses are FOREVER safe and trade deficits are INVARIABLY grave. That is not accurate because foreign countries will always wish to invest capital in countries like the US, which employ it relatively well. One clear case of a nation that borrowed massively from abroad, invested wisely and did excellently well is the United States itself. Although the US ran a trade deficit from 1831 to 1875, the borrowed financial capital went into projects like railroads that brought a substantial economic payoff. Likewise, South Korea had large trade deficits during the 1970s. However, it invested heavily in industry, and its economy multiplied. As a result, from 1985 to 1995, South Korea had enough trade surpluses to repay its past borrowing by exporting capital abroad. Furthermore, Norway’s current account deficit had reached 14 percent of GDP in the late 1970s, but the capital it imported enabled it to create one of the largest oil industries.

B: The headline makes a normative claim while equating bilateral trade deficit with the overarching narrative of bilateral tensions. Such normative claims follow from the author’s value-based reasoning, not from econometric investigation. China and the US may have ideological friction on many levels, but the surplus or deficit has much to do with demographics and population changes within a country at a given time. Nonetheless, a legacy of political rhetoric relishes on inflating and conflating matters. We hear a lot about the prediction that China is forecasted to become the largest economy by 2035, provoking many in the US to bat for protectionist policies. But we ignore the second part of this prediction. Based on population growth, migration (aided by liberal immigration policies) and total fertility rate, the US is forecasted to become the largest economy once again in 2098. 

Therefore, it is strange that a lot of the “trade deficit imbalance” headlines neglect to question if the borrower is investing the capital productively or not. A trade deficit is not always harmful, and no guarantee that running a trade surplus will bring substantial economic health. In fact, enormous trade asymmetries can be essential for creating economic development.

Lastly, isn’t it equally odd that this legacy of political rhetoric between the US and China makes it natural to frame trade deficits with China under the ‘China’s abuses and coercive power’ banner but intimidates the US establishment from honestly and openly confronting the knowledge deficit in SARS-CoV-2’s origin? How and when does a country decide to bring sociology to epistemology? Shouldn’t we all be concerned more about significant knowledge deficits?

Please keep it civil

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