In mid-January talks between Washington and Peking on trade relations broke down over the issue of Chinese textile exports to the United States. China subsequently threatened to curtail purchases of cotton and fiber from the US. Even mentioned was the termination of purchases of American grain and other agricultural products.
The US position was that China sold $827 million worth of cloth and apparel in the US during 1982 - up 30 percent from 1981. This was too large an increase in view of the fact that the other major exporters of textiles to the US were limited to a 1 percent increase and by agreement China was not to be allowed to take up the slack.
Also, the US textile industry was feeling the impact of Chinese sales. According to the American Textile Manufacturers Institute, US production fell by 15 percent from January to October 1982 - which translates into dislocation for the industry.
The Chinese position was that China has been running a large annual trade deficit with the US - around $600 million was the figure cited at the time - and that a growth rate of around 6 percent for China's textile exports to the American market is reasonable. Chinese negotiators further pointed out that China is importing large amounts of cotton and chemical fibers from the US which are used in textile production and that cuts in imports would naturally hurt US-China trade.
In view of the fact that the US is in urgent need of trading partners with whom it can maintain a surplus in the balance of payments, China's argument may be a persuasive one. But is it?
The US has enjoyed a significant balance of payments surplus in its trade with China. And it still does - on paper. On the other hand, during the first 10 months of 1982 US exports to China dropped 13 percent. Meanwhile Chinese exports to the US increased by 22 percent. And this follows a trend that is several years old. Thus one would predict a Chinese surplus in the not too distant future.
One can even question whether there is a US surplus at the present time. China claims the trade relationship is out of balance by more than $600 million. But this is for the entire year. China had a surplus in the third quarter. The last quarter was so close that for all intents and purposes it was balanced.
And if ''invisibles'' are counted, 1982 was a deficit year overall for the US in its trade with China. US Embassy officials in Peking estimate that when such items as services and remittances are added to the trade balance another $500 million should be put on the Chinese side of the ledger.
Much of this comes from US tourists who visit China. More than 100,000 visited China in 1982 and on the average spent $120 per day each - being charged Western prices for everything, quite in contrast to local prices. This totals between $150 and $200 million - compared to the amount spent by Chinese who traveled to the US in very small numbers and who lived in the US on $25 per day on the average.
Another factor is that American shippers handled only about 3 percent of US exports to China and only 1 percent of bulk cargo. Most of China's imports of American products and nearly all of China's exports to the US were carried in Chinese ships. Since the seller of most goods pays the freight, US firms paid sizable shipping costs: nearly $150 million in 1982.
Air travel reflects a similar situation. US passengers accounted for 65 percent of the earnings for China's national airline flights to the US. Few Chinese have been seen riding Pan American. Ditto with banking, communications, insurance, rentals, royalties, fees, and labor: China comes out on the large end of the stick. And add to this $140 million in remittances to China from Chinese with American citizenship or temporarily living in the US.
One must also consider Hong Kong. It is one of China's major trading partners: nearly a quarter of China's exports go to Hong Kong. And between a quarter and a third of these exports are reexported. Since the US is a major purchaser of commodities from Hong Kong (and sells much less there) it accounts for a sizable portion of these reexports - probably at least 10 percent.
The same is true for services and items directly consumed by American tourists visiting Hong Kong. US visitors eat food and even drink water that is purchased from China. Many ''made in Hong Kong'' items are actually produced in China, or are only finished in Hong Kong. China obtains 30 to 40 percent of its foreign exchange from Hong Kong and its exports to the colony exceed its imports by a ratio of about 10 to 1. Realistically this should be considered when discussing the US-China trade balance.
Another addition to the ledger should be the large amount of US ''aid'' to China in the form of most-favored-nation treatment (given to only a few communist countries and notably not the Soviet Union), government-encouraged and -insured private investment, and the sale of technology China could not obtain elsewhere at bargain-basement prices.
Likewise it should be noted that the US does not buy anything from China it cannot obtain easily elsewhere or produce at home (and in the process alleviate unemployment). Note that firecrackers and feathers rank high among items imported from China. Also, China's overall trade balance is in the black because of a favorable balance with third-world countries. America's is in the red because of tariff and other trade benefits to third-world nations.
In short, US-China financial relations weigh heavily in China's favor, not the other way around. Thus Chinese negotiators have little cause to complain about their trade with the US being slightly in the red. Actually, not even this is true.