The bilateral trade imbalances between the United States and China can be solved through more trade and investment rather than trade war, said the Institute of International Finance (IIF) in a report released this week.
America's trade deficit is more of a political issue than an economic concern, with the IIF saying the U.S. trade deficit has not deteriorated in the past decade.
From 2006 to 2016, the U.S. deficit of goods trade decreased from 837 billion U.S. dollars to 753 billion a year, or from 6 percent to 4 percent of its GDP. Considering its surplus in service trade, America's total trade deficit was only 2.7 percent of GDP in 2016, according to the report by the Washington D.C.-based think tank.
"The manageable trade deficit and low unemployment rate (4.3 percent) do not support the protectionist inclination of Washington policy," said Gene Ma, chief China economist at IIF.
Although China accounted for about half of America's trade deficit in 2016, the trade picture looked quite different from China's perspective. From 2007 to 2016, China's current account surplus dropped from 10 percent to 1.9 percent of its GDP, and China's trade surplus dropped from 8.7 percent to 2.2 percent.
"China's goods surplus with the U.S., though growing in an absolute level, has become smaller relative to its total surplus and GDP," the report said.
The United States has benefitted a lot from its economic ties with China. From 2001 to 2016, U.S. imports from China increased 3.5 times while U.S. exports to China increased by almost 6 times, according to the report.
In the service sector, America's surplus with China has been ballooning. In the past decade, U.S. service exports to China increased 5 times and the service surplus increased to 57 billion dollars in 2016, 40 times of that in 2006.
"A trade war between U.S. and China will hurt not only Chinese manufacturers, but also upstream suppliers and downstream distributors such as U.S. retailers," warned the report.
The IIF recommended that the two countries further explore their comparative advantages and new opportunities for trade and investment to solve their trade imbalances.