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China and the Trade War: Confusion at the Washington Post

The Washington Post ran a very confused piece on how China perceives Donald Trump’s trade war. First of all, it hugely exaggerated how much is at stake for China. It implied that China’s economy could take a serious hit if Trump’s trade war substantially reduces U.S. imports from China.

At the moment, Trump is putting tariffs on $300 billion of exports from China. If this lead to a 50 percent reduction of China’s exports of these items to the U.S. (a huge reduction) that would be $150 billion. This is approximately 1.5 percent of China’s GDP measured in U.S. dollars. Since a substantial portion of China’s exports to the U.S. have value-added from other countries (e.g. the Apple iPhone), perhaps two-thirds of this loss would be value-added in China.

That means that the loss of exports to the U.S. would be equal to 1.0 percent of GDP. By comparison, China’s trade surplus fell by 8.0 percentage points of GDP between 2007 and 2011, a period in which China sustained double-digit economic growth.

This reduction in China’s trade surplus also directly contradicts the piece’s claim that:

“But it [China] has made precious little progress on any of these goals [towards liberalizing trade].”

In fact, the huge reduction in China’s trade surplus (equivalent to $1.6 trillion in the U.S. economy today) indicates it has made enormous progress.

The piece also wrongly tells readers:

“Although China’s once-booming growth rates have slowed markedly in recent years, it is still on track to overtake the United States as the world’s largest economy some time around 2030, according to a raft of respected researchers.”

Actually, by the measure most widely used by economists, purchasing power parity GDP, China’s economy is already 20 percent larger than the U.S. economy.

This article originally appeared on Dean Baker’s Beat the Press blog.

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Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

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