Some Believe that The US Trade Deficit With China Will Fall

link here to article

Mark Thoma provides a link to an article suggesting that the US trade deficit with China will decline even if China continues to peg its currency to the dollar. The argument is that US exports to China will grow faster than Chinese exports to the US. Exports to China will increase because China's growing middle class will consume more high value added products produced in the US. China already has a large share of the US import market and it will not be able to increase that share as easily as US exporters can increase their share of the Chinese import market.

This article reflects the hopes of many in the US. Outside of aircraft and agricultural equipment, I have a hard time coming up with a list of the products that we can sell to China's rising middle class. The US economy is predominantly a services economy. Some services, like insurance and investment banking may be tradable, but many are not tradeable. Moreover, China continues to increase its ability to provide high value added products to export markets. It will be in a good position to meet the rising demand of its middle class with domestic products. China is also investing heavily in developing its infrastructure with the latest technologies. The US is milking the investments that it made in infrastructure, and it is falling behind in the maintenance of its existing infrastructure. Its not clear to me that a nation battling over the extent of government spending on investments for the future will fare against a country that is heavily investing in the future.