The Financial Riddler -- 2/21/23

Where the less you know, the more you learn.

Riddle me this:

Can the U.S. Survive Without Trade With China?

Can China Survive Without Trade With the U.S.?

1. Is China America’s ? largest trading partner?

   a. First largest

   b. Second largest

   c. Third largest

   d. Fourth largest

   e. Fifth largest

And the answer is …

The answer is c. Imports from China accounted for 17 percent of total U.S. imports last year. The EU and UK, combined, accounted for 19 percent. And Asia, apart from China, supplied 25 percent of our imports. So, imports from China are important, but not as vital as one might think. Imports of electronics, like Iphones, were the biggest dollar ticket item purchased from China. But roughly one third of our textile imports have a “Made in China” sticker. We also import more furniture, toys, sports equipment, and many other items, including rare earth minerals, from China than from any other country.

2. U.S. Imports as a share of U.S. GDP equals?

   a. 31 percent

   b. 21 percent

   c. 15 percent

   d. 6 percent

The answer is 15 percent. Hence, the U.S. depends on imports, but not overwhelmingly. Imports from China are less than 3 percent of U.S. GDP.

3. What is the share of exports in U.S. GDP?

   a. 6 percent

   b. 9 percent

   c. 11 percent

   d. 14 percent

   e. 20 percent

And the answer is …

The answer is 11 percent. China purchased 8.6 percent of total U.S. exports. Yet these exports to China represent less than one percent of U.S. GDP.

4. What is the share of exports in China’s GDP?

   a. 6 percent

   b. 9 percent

   c. 11 percent

   d. 14 percent

   e. 20 percent

And the answer is …

The answer is 20 percent. Compared to the U.S.’ 11 percent figure, China is almost twice as dependent on trade as is the U.S.

5. What share of China’s GDP consists of exports to the U.S.?

   a. 1 percent

   b. 3 percent

   c. 5 percent

   d. 11 percent

   e. 16 percent

   f. 23 percent

And the answer is …

The answer is just 3 percent. Hence, a complete embargo by the U.S. on trade with China would, arguably, cost China, at most, 3 percent of its output. And a complete embargo by China on trade with the U.S. would cost the U.S., arguably, at most 1 percent of our output. Thus, suggestions in the media to the contrary, neither the U.S. nor China is vitally dependent on foreign trade. Nor is either country vitally dependent on trade with the other. This is the broad brush impression. But, clearly, there are certain things the U.S. imports from China that are critical to particular industries, at least in the short run. One example, in the U.S. case, is rare earths. These minerals are vital to the production of EVs, batteries, and many other low- and high-tech products. A stunning 80 percent of U.S. rare earth minerals are imported from China.

6. To deter China from invading Taiwan, should the U.S. reduce or increase its imports from China?

   a. reduce

   b. increase

And the answer is …

The answer, I’d argue, is b. We should be signing trade deals like crazy with China and, for that matter, partnering with China to explore space, develop Africa’s infrastructure, resolve Putin’s war on Ukraine by, for example, prodding China to provide Putin security guarantees against a NATO invasion, and please think of some other forms of cooperation. Turning China into our enemy will leave it less to lose from an invasion. At the same time, everyone in China and Taiwan surely believes the two countries should be unified under the right political conditions. The U.S. needs to remind both sides, on every occasion possible, that it favors peaceful unification when both countries trust the other enough to unify peacefully.