President Donald Trump has said that he wants to narrow down the trade deficit between the US and China. Ever since he started the trade war with the Asian country, the president has made it clear that he simply wants China to buy more US goods. But it’s really not as easy as it looks. In a note sent to clients, Citigroup said that even if the Chinese government wants to buy more goods from the US, the US doesn’t have the capacity to produce them.
Citigroup said that based on data analyzed from the International Trade Center, the only thing the US can do right now is send $19 billion in soybeans and other meat-related products to China. There’s nothing else it can sell at the moment. The experts argue that in order for the US to hit the proposed $1.2 trillion in product shipments to China, it will have to significantly reconfigure domestic production in the long run. In some cases, the US will also need to change national security protocols that have been in place for years in order to achieve these goals.
The experts say that the conundrum is actually very simple. China wants to buy goods from the US but the US is not ready to sell the goods that China actually needs. For example, the US says that it wants to sell aircraft to China. But Beijing doesn’t need more US aircraft. In addition to this, China has a huge demand for integrated electronic circuits. The US is one of the leading producers of these products but the American government has banned the sale of these circuits due to national security concerns.
Washington has also expressed fear that the Chinese government has been stealing American technology for years. Any shipments of sensitive products from the US to China could further escalate this. However, even if the US changes decades of policy and sells these products to China, experts warn that Washington lacks the capacity to meet the Chinese demand. This is because domestic production for these items is already maxed out.
It’s very unlikely that the US will be able to satisfy China’s demand. For example, Beijing needs $3.6 billion worth of mineral products like coal, LPG, and crude oil. At the moment, the US can only offer $100 million worth of shipments. In addition to this, China also wants about $1.4 billion in poultry products and yet the US can only deliver $700 million. In order for American producers to meet this demand, they will have to expand operations or innovate for increased efficiency. This may take a lot of time and the Chinese government may decide to source these products elsewhere.
There’s also a risk that the US could upset its allies if it decides to do business with China in certain areas. For example, the aircraft industry in the US is already operating at full capacity. US aircraft makers supply other allied countries. If such shipments were redirected towards China, there would be some discontent. And that’s not all. Some US allies are already supplying products to China. If the US steps in, these allies would be left out.
