US-China Decoupling by the Numbers
Politicians in the United States do not want to face the uncomfortable reality about the US trade deficit. Unless they address the macroeconomic underpinnings of America’s multilateral trade imbalance, targeted tariffs and sanctions against China are the political equivalent of rearranging the deck chairs on the Titanic.
NEW HAVEN – American politicians have a long history of mangling economic-policy debates. Some recognize reality, like when George H.W. Bush characterized so-called supply-side tax cuts as “voodoo economics.” But far too many distort economic statistics and analysis to score political points – think of “Modern Monetary Theory” or “deficit scolds.”
The current debate over US-China decoupling is a case in point. From President Joe Biden on down, US policymakers have finally realized that it makes no sense to argue for a full-blown decoupling. Treasury Secretary Janet Yellen claims it would be “disastrous.” Secretary of State Antony Blinken and National Security Adviser Jake Sullivan also dismiss the possibility, stressing that record bilateral trade is prima facie evidence that decoupling simply cannot happen for two tightly integrated economies.
A careful look at the numbers offers a more nuanced assessment. Yes, total US-China bilateral trade – exports and imports of goods and services, combined – hit a record $760.9 billion in 2022. But GDP and most of its major components also broke records. And these figures are all expressed in nominal dollars unadjusted for inflation. In the current inflationary climate, current-dollar estimates of many indicators hit new records almost every day. That tells us very little about the ebb and flow of real economic activity.