The People’s Republic of China and the United States are the world’s two largest national economies. In terms of Purchasing Power Parity (PPP), China is the largest economy with a Gross Domestic Product (GDP) of US$23.1 trillion in 2017 against a GDP of US$19.4 trillion in the United States. However, in terms of the official exchange rate, the United States has a larger GDP of US$19.4 trillion during 2017 against China’s US$12 trillion.
Moreover, China is the main import origin for the US market as well as the third export destination for US products sold internationally, after Canada and Mexico. On the Chinese side, the United States is the largest export destination as well as China’s third largest import origin, after South Korea and Japan. During 2016, China imported a total of US$135 billion from the United States, while exporting US$386 billion towards the United States. This resulted in a trade deficit of US$230 billion for the United States vis-à-vis China during 2016.
Strategic Trade between the United States and China
The two largest product categories within Chinese exports to the United States during 2016 were computers, representing 11% or US$42.5 billion of all Chinese exports to the US, and broadcasting equipment, totaling 6.8% or US$26.2 billion. Simultaneously, the two largest Chinese imports from the United States in 2016 were soybeans, accounting for 10% or US$13.8 billion of US exports to China, as well as planes, helicopters, and spacecraft, representing 9.3% or US$12.6 billion.
Given the escalating tensions between Washington and Beijing as it relates to a confrontation on tariffs, it is important to consider what the most important trade sectors between the two countries are. During 2017, the United States exported US$12.4 billion worth of soybeans towards China. This amount represented 9.5% of all US exports towards China as well as 31% of China’s aggregate soybean imports. Therefore, if soybeans were to be subjected to heavy tariffs on trade between China and the United States, both countries would be economically harmed. The question remains, who would be harmed the most. It is likely that China would intensify its soybean imports from South America, particularly Brazil and Argentina, which are its major soybean suppliers alongside the United States.
Another key sector of trade between China and the United States is civilian aircraft (as was mentioned above). During 2017, the United States sold US$16.3 billion worth of civilian aircraft to China. This amount represents approximately 66.4% of China’s total civilian aircraft imports as well as 12.5% of the US exports towards China. Therefore, within this specific trade sector, the imposition of a tariff on civilian aircrafts sold to China would be more harmful to Beijing in the short-run. However, China could quickly look for willing new aircraft suppliers, such as the European multinational Airbus.