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Trade Gap With China Tops Japan June Deficit Figures Signal Trend Expected To Continue For Many Years

WEDNESDAY, AUG. 21, 1996

The growing U.S.-China trade deficit finally exceeded that of Japan for the month of June, a milestone that signals the largest U.S. trade gap in the next century will regularly be with China, not Japan.

In June, the U.S. deficit with China rose by 9 percent to $3.329 billion from $3.060 billion in May, the Commerce Department reported Tuesday. The month’s deficit with Japan widened by 4 percent, to $3.420 billion from $3.126 billion in May.

For the year, the U.S. deficit with Japan will remain the country’s largest trade gap - topping $45 billion, compared with a U.S.-China deficit that is likely to be around $34 billion.

Though there may still be months when the U.S.-Japan deficit is the largest, the June numbers clearly signal a trend, analysts said. By early in the 21st century, the nation’s largest annual trade deficits will be with China, setting a pattern that could continue at least through 2025, said Clyde Prestowitz, president of the Economic Strategy Institute and currently vice chairman of the President’s Commission on U.S. Trade and Investment in the Pacific.

Declining sales of Japanese cars in the U.S. are narrowing the trade gap with that country, while Americans’ appetite for low-priced consumer goods from China, including apparel, toys, footwear and small electronic products, are boosting imports from that country.

The U.S.-Japan trade deficit for the first six months of 1996 is $10 billion smaller than during the same period a year ago, narrowed by a 32 percent drop in Japanese auto sales to the U.S.

Though the trade deficit with Japan is narrowing, analysts said lack of U.S. access to Japanese markets ensures that trade tensions between the two nations will persist. Because China’s markets remain more open, the widening trade gap with China won’t necessarily aggravate existing trade tensions with that nation, they say.

“I don’t think China will be the next Japan because too much emphasis is focused on the trade deficit,” said Prestowitz. “The problem with Japan has always been market access.

“It’s easier to sell and invest in China,” said Prestowitz, who was also a senior U.S. trade negotiator in the Reagan administration.

China, with a an increasingly wealthy population of more than 1.2 billion - 10 times that of Japan - is considered a huge potential market for U.S. goods and services.

That’s why U.S. manufacturers like Boeing Co. seek stable trade and political relations with China.

Boeing, the world’s largest maker of commercial jets, earlier this year lost a potential sale of 30 aircraft worth $1.5 billion to European rival Airbus Industrie.

At the time, Boeing officials said they lost that order because the Chinese were upset with Washington’s efforts to punish China for alleged abuse of intellectual property rights.

With that dispute out of the way, Boeing executives have said that they expect to book orders for as much as $4 billion worth of aircraft to China this year. The orders could come as soon as next month, when a Chinese trade mission is scheduled to visit the U.S.

China also holds huge potential for U.S. agricultural exports. Sales of corn have soared in the past two years as China, usually a net exporter of corn, turned to a net importer to support its growing livestock industry.

Chinese consumers, increasingly more affluent, are demanding better food choices and western tastes in bread and other food products are increasingly making their way into the Chinese diet.

U.S. exports of wheat to China, while currently halted by a dispute over whether the wheat is contaminated, are expected to resume at some point because China isn’t self-sufficient in wheat and needs to import at least 10 million metric tons annually.

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