American Rescue Plan: US stimulus seen widening trade deficit that sparked Trump’s trade war with China
- Higher US interest rates and widening trade imbalance with China said to be side effects of President Joe Biden’s US$1.9 trillion American Rescue Plan
- With bilateral relations already at their lowest point in decades, a rising trade deficit could add fuel to the fire
The US$1.9 trillion American Rescue Plan is poised to attract more Chinese imports, and analysts expect it to widen the United States’ contentious trade deficit with the world’s second-biggest economy.
The stimulus will add about US$30 billion to US imports from China this year, estimates Derek Scissors, chief economist at China Beige Book International, a data-collection platform tracking the Chinese marketplace. And if all of the stimulus dollars were to be spent rather than saved, Societe Generale estimates it would pull in as much as US$40 billion in additional Chinese imports.
Even if China ramps up buying under a trade deal signed with the US in January 2020, this would not be enough to offset the gravitational pull of the stimulus. The risk is that, with bilateral relations already at their lowest point in decades, a rapidly widening trade deficit adds more friction – especially if China falls short of buying targets agreed in the trade accord.
“A strong recovery – for example, a 9 per cent increase in nominal [gross domestic product] – would push the bilateral goods deficit past US$500 billion and draw political attention,” Scissors said.