So far, only China seems determined to do that. Our Japanese and German friends and allies, entirely dependent on America’s hugely expensive military protection, are showing no particular interest to follow the same path. The trade deficit with Japan in the first two months of this year is roughly unchanged from the year before, but the deficit with Germany continues to grow on weak U.S. sales to that country.
The question now is: What does the change of China’s trade policy toward the U.S. mean for the two countries and for the world economy as a whole.
With its excessive and ultimately unsustainable trade surplus, China knew it had to initiate an appropriate adjustment of unbalanced economic relations with its most important trade, political and security counterpart in the world. That process is now under way.
The declining trade deficit will provide an important support to American economy, where the external sector represents nearly one-third of the country’s demand and output. In the case of China, the reduction of trade surpluses will hasten the structural transformation of the economy toward an increasing share of household consumption, domestic investments and service sector industries. The reliance on demand components that can be directly controlled by monetary and fiscal policies will strengthen the stability and growth dynamics of the Chinese economy.
The U.S. and China represent…
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