Why does China account for such a large part of the U.S. trade deficit?
Forget the renminbi. Nicholas Lardy says to look at changing patterns of economic activity within East Asia. Over the last 20 years, other East Asian countries have been transferring many of their assembly operations to China. They still make the parts, but these are increasingly assembled in China and exported from there to the U.S. and Europe. In fact, although China’s share of the U.S. deficit has grown, the overall share of key East Asian countries, including China, has shrunk. Here’s a selection from Lardy’s essay, “China: The Great New Economic Challenge”: “…the growing imbalance is because China has become a leading location for the assembly of a broad range of manufactured goods, mostly by foreign firms that have relocated their assembly activities to China from other sites in Asia… China’s global pattern of trade – surpluses with the United States and Europe but deficits with most of its Asian neighbors – stems from China’s rapidly increasing role in the global production
