China & World Economy / 113–122, Vol. 28, No. 2, 2020

Why Does the US Face Greater Disadvantages in the Trade War with China?

Yew-Kwang Ng

Abstract

The rhetoric used by President Trump regarding the trade war against China is rife with misinterpretation. The actual American trade deficit with China is much lower if evaluated in the correct terms of value-added. The deficit is mainly a result of insufficient domestic US savings. In addition, as the US dollar is an international currency which is being increasingly held as a result of increases in world population, income, prices and transaction intensity, Americans can benefit from having trade deficits of hundreds of billions of US dollars each year. My analysis, as well as a model of the Bank of England, reveals that the trade war is not only mutually harmful but also actually hurts America more than China. The Thucydides Trap is likely avoidable in the current nuclear era of assured mutual destruction and because China, facing many structural impediments, is still far behind America in technology and military power.