Market and product

U.S. President Donald Trump has made closing America’s trade deficit with China a top priority. The problem is, it’s growing instead. For Trump, that’s probably more proof that his tariff-heavy, get-tough approach to China is the correct strategy. For economists, it’s not such a big deal. The U.S. economy is roaring, and roaring economies tend to import more.

There’s another reason, too, why the trade balance is the wrong figure to focus on. It only captures one part of the greater economic relationship between the U.S. and China — and only as that relationship currently stands. Fixating on it distracts from what ultimately counts: U.S. corporate competitiveness and profitability.

To understand why, consider some new Oreo flavors. In August, U.S. snack food giant Mondelez International Inc. rolled out “hot chicken wing” and wasabi-flavored versions of the classic American cookie. Not quite to your taste? Well, they may not be aimed at you. The new cookies are being sold only in China. More than that, they were developed at Mondelez’s research center in Suzhou and are produced by factories on the mainland. Mondelez launched the new entries on JD.com, a Chinese online retailer. (The first batch sold out in nine hours, according to Mondelez.)

There are many such examples of U.S. companies localizing their operations to target the Chinese market. General Motors Co. manufactures nearly all the cars it sells in China within the country. It even has a car brand, Baojun, developed for and only marketed to Chinese drivers. The vast majority of what the Procter & Gamble Co. sells to Chinese consumers is made locally. The company boasts nine manufacturing plants in China.

U.S. President Donald Trump has made closing America’s trade deficit with China a top priority. The problem is, it’s growing instead. For Trump, that’s probably more proof that his tariff-heavy, get-tough approach to China is the correct strategy. For economists, it’s not such a big deal. The U.S. economy is roaring, and roaring economies tend to import more.

There’s another reason, too, why the trade balance is the wrong figure to focus on. It only captures one part of the greater economic relationship between the U.S. and China — and only as that relationship currently stands. Fixating on it distracts from what ultimately counts: U.S. corporate competitiveness and profitability.

To understand why, consider some new Oreo flavors. In August, U.S. snack food giant Mondelez International Inc. rolled out “hot chicken wing” and wasabi-flavored versions of the classic American cookie. Not quite to your taste? Well, they may not be aimed at you. The new cookies are being sold only in China. More than that, they were developed at Mondelez’s research center in Suzhou and are produced by factories on the mainland. Mondelez launched the new entries on JD.com, a Chinese online retailer. (The first batch sold out in nine hours, according to Mondelez.)

There are many such examples of U.S. companies localizing their operations to target the Chinese market. General Motors Co. manufactures nearly all the cars it sells in China within the country. It even has a car brand, Baojun, developed for and only marketed to Chinese drivers. The vast majority of what the Procter & Gamble Co. sells to Chinese consumers is made locally. The company boasts nine manufacturing plants in China. - Bloomberg -