FACT CHECK: Does The US Have A $500 Billion Trade Deficit With China?

Emily Larsen | Fact Check Reporter

President Donald Trump said Thursday that the U.S. has a $500 billion trade deficit with China.

Verdict: False

The U.S. trade deficit with China was $337 billion in 2017.

Fact Check:

Trump enacted a 25 percent tariff on steel and a 10 percent tariff on aluminum Thursday, in part because of concerns that Chinese overproduction of the goods threatens the U.S. economy.

During a signing ceremony at the White House, Trump expressed concern about trade with China overall. “We have a deficit with China of at least $500 billion, and when you add intellectual property, it’s much higher than that. That’s a year,” he said. The President repeated the claim just before leaving the room. “We’re losing with China $500 billion a year. We have to do something.”

The U.S. does have a substantial trade deficit with China, but Trump overstated its size. Data from the Bureau of Economic Analysis shows that the trade deficit – the value of imports from China that exceed the value of U.S. exports to China – was $337 billion in 2017, $309 billion in 2016 and $334 billion in 2015.

The trade deficit with China is made up of two parts: a goods deficit and a services surplus.

Physical products like food, clothes, electronics and machinery fall under the category of goods. Overall, the U.S. imports more products from China than it exports, resulting in a $376 billion deficit on goods in 2017.

But the large goods deficit is offset by a small trade surplus for services. The U.S. exports more services like royalties, licenses, financial services and travel services to China than it imports.

The $376 billion goods deficit combined with the $39 billion services surplus results in a $337 billion total trade deficit with China for 2017.

Trump also regularly exaggerates the size of the U.S. global trade deficit. Without defining his terms, he says that it stands at $800 billion a year. Though the goods deficit alone is $810 billion, the combined goods and services deficit is $566 billion.

At the press conference, Trump said that accounting for intellectual property means that the U.S. loses more than $500 billion each year to China. He was likely referring to Chinese theft of intellectual property.

Trump told Reuters in January that he was considering a big “fine” due to the theft. The Office of the U.S. Trade Representative found in 2017 that China engages in “trade secret theft, rampant online piracy and counterfeiting, and high levels of physical pirated and counterfeit exports to markets around the globe.”

Some analysts say that intellectual property theft is a much bigger economic threat than China’s steel and aluminum overproduction or the trade deficit.

The Commission on the Theft of American Intellectual Property estimates that the theft annually costs the U.S. economy somewhere between $225 billion and $600 billion due to software piracy, counterfeit goods and theft of trade secrets, mostly from China.

The Wall Street Journal reported Thursday that the Trump administration recently asked China to create a plan to cut the trade deficit by $100 billion. (He apparently mis-tweeted this information Wednesday, saying that he was asking for a $1 billion reduction).

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Emily Larsen

Fact Check Reporter