Question

Compared to the United States how does the China government budget deficits/surplus and the trade balance reconcile with the empirical data and the theory/principles from the course? Does theory match the actual data? Are theory and empirical data telling a different story?

Answer 1

China and USA have seen huge trade deficit and actuals and empirical data have seen high correlation and similiarity.

As of 2017 data the Us China trade deficit was calculated as 370 billiin dollars using empirical formulae and actual data suggested deficit of 375billiin dollars which is in line with expectations.

Both US and China have imposed Tarriffs on each other and look forward to resolving in G20 summit.

Already 50 billion dollars tariff has been imposed on China and more 200 billion dollar is on cards.

The only resolution is to appreciate chinese currency with respect to Dollar as fixed currency. Chinese government is trying to manipulate currency every year and is simultaneously looking for UsA to withdraw itself from basket of currencies which will make the exchange rate flexible and reduce trade deficit .