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China-Japan-Koreas
Blame the China deficit
2006-08-12
By Peter Morici

On Thursday, the US Commerce Department reported that the June trade deficit on goods and services was US$64.8 billion, down from $65 billion in May but up from $63.3 billion in April.

The petroleum deficit fell to $24.7 billion in June from $25.8 billion in May, but was up from $21 billion in April. Prices rose in June but import volumes fell. The oil-import bill is likely to rise in July and August, because of conditions in Middle East markets and the shutdown of significant production in Alaska. Also, imports from China continued to rise.

Tightening conditions in international oil markets and rising imports from China will soon push the United States' annual trade deficit to $800 billion, imposing a significant drag on economic growth.

The trade deficit must be financed by foreigners investing in the US economy or lending Americans money. Direct investment in US property and productive assets provides only a small portion of the needed funds, and the balance is obtained through the sale of Treasury bonds, corporate bonds, bank accounts and other paper assets. Americans borrow nearly $60 billion each month to consume more than they produce. The total debt will exceed $6 trillion by the end of 2006.
Posted by:Steve White

#11  Z: Our military ascendancy relies upon the ability to reliably manufacture and assemble a huge swath of products. Flat panel color displays for our fighter cockpits, flash memory and bulk DRAM storage chips are vital to the instrument intensive "net-war" model being adopted by our military. Much more simple tasks, such as garment manufacturing assume signifigantly grater importance if we are at war and need specific seasonal uniforms. Vehicle assembly (be it cars or tanks) and a host of other middle tier industries all tie in to our national security. Shall we permit any of these to wither and die solely because of our enchantment with low-priced and low-quality manufactured goods streaming forth from a country that has openly ruminated on declaring nuclear war upon us?

These are all American technologies. We design the machine tools, the manufacturing lines for these tools and the processes for these manufacturing lines. In many cases, the made-in-China products that we buy in stores are manufactured in American-owned plants. Sanmina and Solectron are just two of the American subcontractors that assemble the made-in-China gadgets that we see in the stores. The physical plant might be in China, but the technical knowhow is all American. Note that China isn't such a great place to do business except for the low wages. Even at the current exchange rate, Chinese wages and rents are spiralling out of control. Companies doing assembly work are starting to look at Southeast Asia* again because of increasing Chinese costs.

* For the geographically-challenged, China is part of Northeast Asia.
Posted by: Zhang Fei   2006-08-12 23:28  

#10  We can't and don't intend to. That's where the problem comes in.

I don't agree with this, but if so, how is this a US problem?

The US debt is paid every month, every year, day in and day out at the prevailing interest rate.
Posted by: 6   2006-08-12 19:17  

#9  At what point does it stop?

When they stop taking our worthless paper promises in exchange for their manufactured goods that can't easily be returned or reposessed.
Posted by: Nimble Spemble   2006-08-12 16:53  

#8  US manufacturers are hit particularly hard. China's currency-market intervention creates a 25% subsidy on its exports

Nothing a 25% tariff couldn't cure. So many of you seem so unconcerned about this issue. To quote a prominent economist, "A nation cannot subsist by taking in one anothers' washing."

Somewhere, someone needs to actually be building something. China's refusal to properly float the Yuan is allowing it to hollow out the manufacturing cores of most other industrialized nations. At what point does it stop?

Our military ascendancy relies upon the ability to reliably manufacture and assemble a huge swath of products. Flat panel color displays for our fighter cockpits, flash memory and bulk DRAM storage chips are vital to the instrument intensive "net-war" model being adopted by our military. Much more simple tasks, such as garment manufacturing assume signifigantly grater importance if we are at war and need specific seasonal uniforms. Vehicle assembly (be it cars or tanks) and a host of other middle tier industries all tie in to our national security. Shall we permit any of these to wither and die solely because of our enchantment with low-priced and low-quality manufactured goods streaming forth from a country that has openly ruminated on declaring nuclear war upon us?

American politicians on both sides of the aisle have been bought off by groups whose interests lie with the continued importation of cheap Chinese goods. When will everyone wake up and recognize that the American people are being sold down the river by sleazy pols whose greatest concern is being re-elected and not in serving the public.
Posted by: Zenster   2006-08-12 16:43  

#7  The blog Cafe Hayek talks a lot of good stuff about 'deficits', here's a good post related to the twin deficits.
Posted by: Tony (UK)   2006-08-12 16:34  

#6  Well, the West warned the Chinese six ways from Sunday to let the Yuan float, and they have ignored the advice, even though their own financial gnomes agreed.

So, when the bubble bursts, and they are left holding the bag, they will no doubt blame us for their troubles, noting that we have heavily insulated our economy from crash-diving in tandem with theirs.
Posted by: Anonymoose   2006-08-12 14:37  

#5  Everything is wonderful until we have to repay the debt. We can't and don't intend to. That's where the problem comes in.
Posted by: SOP35/Rat   2006-08-12 12:50  

#4  I continue to run a defecit with Winn Dixie Publix luckily I create enough wealth to keep them happy.
Posted by: 6   2006-08-12 11:42  

#3  Redneck Jim.... yeah he's running a deficit with you but hopefully he's not running an overall deficit. The goods/services you're producing he's selling and who he's selling to is running a deficit with him.

The issue in some peoples' view is that we're running an overall deficit when it's all added up. I'm personally not concerned with it.
Posted by: Damn_Proud_American   2006-08-12 11:04  

#2  Translation, "We bought more than we sold"

Big deal, the only thing I "Sell" is my time and labor, for which I get a paycheck, then I spend some of it, and keep a portion for the future.

So in the same vein, My employer runs a deficit, he spent money, and got labor, which is not accounted for as a trade item.
Posted by: Redneck Jim   2006-08-12 09:53  

#1  Whilst I worry about the geopolitical implications of global free trade (dependance on economic inputs beyond your political control), in economic terms imports make any economy wealthier.

And if China wants to subsidize American consumers, where's the problem?
Posted by: phil_b   2006-08-12 07:13  

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