*WINNER* The United States trade deficit with China - Solutions?


  • Hannes Vohn


"Many American economists, politicians and citizens are afraid of a widening trade deficit with China. Deep political conflicts regarding how to do business with the People’s Republic dominate current news. Many think of protectionism as the solution to decreasing the trade deficit because protectionist measures can counter China’s unfair trade practices. The question asked is whether there is a solution which decreases the trade deficit while increasing the American economic output.

The goal of this thesis is to offer deeper insight into the United States trade deficit with China to examine the efficiency of protectionist measures. The thesis begins with a review of the historical, as well as the current, trade and political environment between the US and China. Additionally, the thesis provides a detailed discussion on China’s business practices. Furthermore, this study explores the pros and cons of protectionism. Special emphasis will be placed on macroeconomic developments, how China treats American businesses and solutions to lower the trade deficit. Furthermore, the advantages of free trade theories such as effects of the Heckscher-Ohlin model will be discussed.

Ultimately, this thesis proposes that the best option for the United States is a bilateral investment treaty with China because protectionist measures would benefit select industries but slow overall economic growth."