U.S.-China Trade Deficit

The demand for manufactured goods from China continues to rise in the United States. The trade deficit in 2009 was $227 billion. According to this article on about.com this is the largest deficit in the world between any two countries. What does this mean for Americans? It means that American businesses are having difficulty competing with the low cost of goods produced in China, and will have to lower costs by moving operations overseas or seek some other method of lowering costs, or shut down operations. As long as the Chinese hold the value of the Yuan lower than the US dollar, through buying US treasuries (and other means), Chinese goods will be cheaper and the demand for those goods will continue to rise shifting the demand curve out to the right.

1 comment:

Dave said...

Or, it means that American businesses could stop trying to produce things that the Chinese do better, and move on to things that we do better.

It's the moving on part that is hard.