AMERICAN companies are doing much more in China than the U.S. trade deficit suggests.

The deficit, the difference between what the U.S. imports from China and what it exports to the Asian country, widened to US$375 billion last year. It sounds like a lot. U.S. President Donald Trump and others take it as evidence that the relationship between the world’s two largest economies is out of whack.

But comparing imports with exports is not a full picture of American commerce with China. A closer look reveals that U.S. firms are in significantly better shape than the deficit suggests — and therefore also are more vulnerable to a trade war.

The huge missing ingredient in the trade deficit number is the business done in China by American companies.

General Motors Co. sells more cars in China than at home. There are more Apple Inc. iPhones used in China than in the United States. Overall, China subsidiaries of U.S. companies sold US$223 billion in stuff in 2015, reckons Deutsche Bank AG.

Much of that business isn’t reflected in the deficit figures reported each month by the U.S. Commerce Department because the goods never actually cross a border. American firms’ output is produced in China and sold in China. In the United States, Chinese firms don’t make and sell nearly as much. Deutsche Bank’s estimate was just US$22 billion.

That’s ultimately a weakness in Trump’s trade skirmish. U.S. companies are very exposed to retaliation by China that might go way beyond the question of tit-for-tat tariffs on imports.

Trump has proposed tariffs worth US$50 billion on Chinese imports as part of a formal process under Section 301 of the Trade Act of 1974. In what might have been a fit of pique, he ordered officials to consider a further US$100 million.

U.S. exports to China amounted to US$130 billion last year. If China retaliates in kind, it will run out of U.S. products to hit with tariffs. It might resort to measures other than tariffs. All those Chinese subsidiaries of American companies suddenly look like a target.

These operations are critical for American businesses. As sales overseas become more important for U.S.-based firms, China becomes more important in tandem. The United States is due for a recession in the next few years. The expansion that began in 2009 is now almost the longest ever. At some point it will end. Strong operations offshore will compensate for softness at home.

American finance and industry, through their global sway and their presence in Corporate America is far bigger in China than the trade deficit would have you believe. Trump should keep in mind that the U.S. has a lot to lose. (SD-Agencies)