The Foreign Service Journal, May 2005

ing a new source of relatively inex- pensive land and labor for the more developed economies in the region. At the same time, as often the last link in this regional supply chain, China expanded as a mar- ket for raw material and compo- nent products from other coun- tries around the region. In fact, Beijing estimates that the country provides only about 15 to 20 per- cent of the value added to its processing exports, with the bulk of the value created by imported capital and tech- nology and component parts and services. Meanwhile, China’s rapid growth has led to an expanding domestic market that is now estimated to include up to 100 million middle and upper income (those earning above $7,000 per year) consumers with a growing appetite for agricul- tural imports and business and tourist travel around the region. This general phenomenon is reflected in the rapidly expanding trade between China and other Asian economies, especially in terms of the PRC’s expanding market. China recently surpassed the United States as the largest trading partner for South Korea and, if trade with Hong Kong were included, for Japan, and as the sec- ond-largest partner for Taiwan (after Japan). More broadly, its trade with other East Asian economies more than tripled over the past decade. China registered a combined $126-billion trade deficit with Taiwan, South Korea, Japan and ASEAN in 2004. Even China’s trade with South Asia has begun to grow rapidly, for example, with bilateral trade with India growing by 79 percent in 2004. China’s rapid economic growth has thus also helped to sustain and support the region as a whole. Impact on U.S.-China Trade Relations China’s economic growth has also had a significant impact on U.S.-China trade relations and the U.S. econ- omy. The focus of attention in the United States has pri- marily been on our rapidly growing bilateral trade deficit with China, which was $162 billion in 2004 according to U.S. statistics, or around $80 billion according to PRC statistics. (Note: The main reason for the disparity in these figures involves different ways of calculating the large volume of trade through Hong Kong and China’s export processing zones.) The trade deficit has certainly caused a great deal of concern on Capitol Hill and in the adminis- tration, especially in connection to the loss of manufacturing jobs in the United States. What is not as commonly known or acknowledged, howev- er, is that China has been, by far, the fastest-growing market for the United States. U.S. Commerce Department data show that ex- ports to China increased by over 80 percent in the three years since Beijing acceded to the World Trade Organi- zation in December 2001. U.S. exports to China grew by 22 percent in 2004, most notably in agricultural, chemicals and higher-technology manufactured products. China has nowmoved up to become our fifth-largest export mar- ket in the world. As such, the main reason for our grow- ing bilateral trade deficit with China is not so much the lack of access to its market as it is the enormous demand of the American consumer for low-priced manufactured goods from Asia, now increasingly being sourced from China. In contrast, U.S. exports to the rest of our trading part- ners, including the European Union and Japan, have stayed mostly flat or declined over the past five years. Consequently, our trade deficit with China has actually fallen as a percentage of our global trade deficit since 1997, as the deficit with other economies has grown even faster due to our rising imports and stagnant or declining U.S. exports to those economies. For example, the 2004 U.S. trade deficit with the E.U., Japan, OPEC, Canada and Mexico totaled $368 billion; significantly, the deficit with each was at a record high (except for Japan, which was the highest since 2000). Moreover, while our trade deficit with China has risen sharply, our overall trade deficit with East Asia (including China) has increased much more slowly over the past two decades. This is because Japan and the East Asian “drag- ons” have shifted not only an increasing percentage of their manufacturing base but also their trade surplus with the United States to China. As noted earlier, Beijing reg- istered a trade deficit of $126 billion with its East Asian neighbors in 2004 while its trade surplus with the United States rose to $162 billion. Though U.S. imports from China have risen, our imports from the rest of Asia have actually declined as the latter have been exporting more F O C U S 20 F O R E I G N S E R V I C E J O U R N A L / M A Y 2 0 0 5 What is not as commonly known or acknowledged is that China has been, by far, the fastest-growing market for the United States.