President Trump will use his Asia trip to discuss America’s swollen trade deficits with the region. Trade imbalances are caused by macro factors: America saves too little, Asia saves too much.  This Chart, however, does indicate that America’s penetration of some key Asian markets is far lower than their access to the US market.

China will argue that their savings rate is falling, and their overall current account surplus is small. Further,  their surplus with the USA reflects the two nations’ differing positions in the global supply chain. China runs big deficits with Korea, Japan and Germany from whom they import capital equipment in order to produce the  consumer goods craved by the seemingly insatiable American consumer. The problem lies primarily with the USA, China contends.

Two things are clear. First, the US external imbalance will not shirink until Americans save more. Second, rather than threaten punitive tariffs on Asian imports, President Trump should encourage Asian nations, especially China and Japan, to save less and liberalise their markets for services, tech, health care, and media — sectors in which the US enjoys a comparative advantage.

See my blog “Asia: Coping with Trump, China, and the Fed” for my outlook for Asain markets.