The United States has been one of the largest trading partners of China over the past two decades, but now the world is facing a trade deficit of nearly $1 trillion.
And it will grow.
The trade deficit is the result of the rapid pace of China’s economy growth, a large part of which has been fueled by trade between the two countries.
A recent McKinsey report found that the trade deficit could reach $3.5trn by the end of 2020, a staggering $2.5tn in today’s dollars.
The report pointed out that this could have serious implications for the global economy, as China’s export growth has been growing at a faster rate than the US economy, leading to a global trade deficit.
The McKinsey team pointed out the fact that China’s exports to the US are growing at over 20% a year, which means that the overall trade deficit in 2020 is likely to be larger than $1trn.
The McKinsey research group also pointed out how the trade deficits will grow even more, as the growth in Chinese trade with the US is expected to accelerate, as a result of Trump’s administration’s policies and policies of the Republican Congress, which includes a $5.5bn trade package that will give China a new reason to export more.
According to McKinsey, China’s trade deficit with the United States is projected to reach $1,000trn in 2020, or more than twice the current $2,500trn, and by 2025, the total trade deficit will reach $2 trillion, or roughly a third of the trade surplus between the countries.
The reason for this trade deficit, McKinsey says, is because China’s growing economy requires a lot of foreign currency.
China has already used this currency as a way to make exports cheaper, so the country is now importing more of its own currency.
The result, McKinys researchers argue, is that the US can no longer buy goods from China and will end up buying more of the Chinese goods.
If the trade gap with China continues to grow, then the world will face another major economic crisis in the coming years, as rising inequality, rising inflation and the weakening of the US dollar will increase demand for goods and services from China.
The increase in trade with China will lead to even more of these issues, McKinseys researchers argue.
“We expect that as trade flows between China and the US continue to increase, the economic crisis created by the Trump administration and congressional Republicans will worsen, and that by 2025 the trade balance with China could exceed $3trn,” they wrote.