The United States’ reliance on imported Chinese goods to support its national economy has left America in a precarious position⎼and that was before the COVID-19 pandemic swept the globe. In 2018, the United States had a trade deficit of $420 billion with China, importing crucial goods such as computers and electronics, medical equipment, fabricated metals, transportation parts, chemicals, textiles, and pharmaceuticals. In 2001, the trade deficit totaled only $83 billion. The growing disparity between American and Chinese trade over the past two decades is remarkable in and of itself. The current trade imbalance between these two countries is even more apparent when looking at the trade deficit in 1985, which was only $6 million–near parity in imports from and exports to China. In short, the rate at which the U.S. exports goods to China has failed to keep pace with the rate at which the U.S. imports goods from China, leaving the U.S. dependent on Chinese goods and vulnerable from a trade-relations perspective.
While the full extent of the economic impact COVID-19 will have on the U.S. and the rest of the world is unknown, the adverse effects of America’s reliance on Chinese goods are already being felt across all U.S. businesses, big and small. Moreover, business owners are not the only ones suffering. Many U.S. consumers rely on cheap Chinese goods. The PMI, China’s measure of manufacturing productivity, dropped from 50 to 35.7 this past January, meaning the total production of the world’s factory dropped nearly 30% in one month due to this virus. Thus, American business owners and employees are left to worry over when they will receive the next shipment of goods to manufacture products, fill orders, and stock shelves in an effort to survive this recession.
COVID-19 has not only exposed how fragile human lives can be during a pandemic, but also how fragile industries and economies can be when faced with a crisis of this magnitude. If the U.S. treats COVID-19 as an isolated incident, it risks being completely unprepared when the next event-driven crisis strikes, during which Chinese (and other foreign) goods could be unavailable once more. The U.S. economy could come to a halt yet again, and America could enter another recession. This pandemic should cause the U.S. to shift its focus towards reducing budget deficits, producing more goods domestically, and importing fewer goods.
The fact that U.S.- Chinese relations are tense at best should be reason enough for the U.S. to distance itself from China. The U.S. is currently engaged in a trade war with China, over issues ranging from illegal subsidies to lack of environmental regulation. Additionally, the U.S. Navy is closely monitoring China’s effort to occupy most or all of the South China Sea, a disputed territory rich in oil and natural gas, and the fishing grounds for many surrounding nations. The U.S. must correct the trade imbalance, particularly if relations between these two countries continue to deteriorate and the U.S. is unable to gain the upper hand in future trade negotiations.
In an attempt to strengthen its trade position, the U.S. has enacted tariffs, or taxes, on Chinese goods imported into the U.S., making those products more expensive and, subsequently, less economically appealing to U.S. businesses and consumers. While the U.S. may have had some success with tariffs, this tactic often has adverse effects as there may not be alternative, cheaper sources of the affected goods. U.S. companies are then forced to pay more for the manufacturing of said goods and pass these added costs on to U.S. consumers.
An alternative option would be to use U.S. government subsidies, or federal grants, to allow certain businesses to sell goods at lower prices and undercut international competition. Subsidies can be useful in building up U.S. industry and creating jobs, but at what cost? They’re expensive, can create market distortion, and require ongoing payments by the federal government.
The U.S. also could curb the practice of importing goods from China by devaluing the U.S. dollar in an effort to increase global spending on U.S. exports and reduce trade deficits. The price of imports would increase while simultaneously decreasing the price of U.S. products worldwide. Devaluation also comes at a cost, namely, hurting U.S. corporate and consumer abilities to purchase foreign products and potentially creating global “currency wars.” This move would also undercut confidence in the world’s reserve currency, leading to even more long term issues.
Yet another option to help reduce U.S. dependence on Chinese goods would be the federal enactment of something similar to the “Buy American” clause, found in the American Recovery and Reinvestment Act of 2009, as a condition of all future corporate bailouts during this recession. This clause would give preferential treatment to U.S. manufacturers by mandating businesses to procure some or all of its goods from American producers for a specified duration in exchange for federal assistance. While protectionist clauses are generally frowned upon by the United Nations and the World Trade Organization, this option is worth considering as it could be specifically tailored as a post-COVID-19 economic recovery plan to help stimulate the U.S. economy.
The US cannot continue to be dependent on a rival power after this pandemic. One way or another, the nation will have to wean itself off cheap Chinese goods, and once again invest in the domestic industrial base.