Trade Deficit Strains U.S.-China Relations
Aug. 14, 2007 (KGO) (KGO) -- Despite toy and food recalls, America's appetite for Chinese-made goods is on track to set a new record trade imbalance this year. The deficit in June alone rose 5.7 percent, and it's putting a strain on U.S. - China relations.
America and China are joined at the hip. China's cheap labor keeps prices low on toys and other goods Americans buy. Demand for low-cost products creates jobs for millions of Chinese.
What's good for both countries has now created a dilemma on both sides of the Pacific. America's trade deficit with China is growing at a rate 15 percent higher than last year, and a fast-growing Chinese economy has created double-digit inflation, especially for food.
Yea-Mow Chen, Ph.D., San Francisco State Finance Professor: "Especially for those meat prices, egg prices, those have been rising by 20% -- 15% -- and some of them by 25%. So the living standards or the cost of living have been changed, much, much higher than before."
Yea-Mow Chen is a professor of Finance at San Francisco State and an expert on China's economy.
The U.S suggests two solutions. To curb Chinese imports, key members of Congress want to impose new tariffs, which is something China doesn't want.
Any drop in U.S. sales might lead to layoffs and an economic slowdown.
Lydia Ortega, Ph.D, San Jose State Economics Department Chair: "Over 1,028 economists from all 50 states, over 400 institutions, agree that trade barriers benefit no one."
The other solution is raising the value of China's currency, the Yuan. That, in turn, would increase prices for American consumers.
Yea-Mow Chen, Ph.D.: "If Chinese products become more expensive then it'll be from other countries. We'll not be able to cut down the trade deficit the U.S. has with other countries."
China is slowly allowing its currency to appreciate, but not enough to satisfy some critics.
The U.S. continues to prod China, but China isn't budging, and the issue of the trade deficit isn't going away.
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