Transcript Is the Huge Trade Deficit of U.S. Caused by China?

Is the Huge Trade Deficit of U.S. Caused by China?
----Analysis of the Balance of Payment of U.S.
Instructor’s comment:
This is a good, solid example of first laying down the theoretical foundation from the class
and the lecture notes, and then making an extended argument of one’s own. The
references are solid and genuine.
Is the Huge Trade Deficit of U.S. Caused by China?
•
At the early 70s of the last century, Trade deficit of the U.S. began to
appear. After that, the amount of the deficit keeps growing. Mieczyslaw
Karczmar(1923), who the Economic Adviser to Deutsche Bank Research,
said "The U.S. balance of payments is by far the most confusing and
least understood area of the U.S. economy. The confusion is centered
on the large and rapidly growing deficits. Indeed, the deficit on the
current account of the balance of payments rose from USD 474 billion in
2002 to USD 531 billion in 2003 and is estimated to reach over USD 600
billion in 2004." U.S has become a country that with the largest trade
deficit in the world nowadays, and also the largest debtor nation.
Is the Huge Trade Deficit of U.S. Caused by China?
Is the Huge Trade Deficit of U.S. Caused by China?
• Why is there such a large amount of trade deficit in
U.S.? The United States did not have a self-reflection,
but always passing the buck to other countries. They
thought the trade deficit is caused by Japan and
Germany in 20 years ago. In recent decade, they
thought China is the prime criminal to cause the trade
deficit appear. Thus, the United States wants to push
Chinese Currency to appreciate, set anti-dumping
duties; set a variety of technical barriers; set green
barriers and social barriers etc.
Is the Huge Trade Deficit of U.S. Caused by China?
1) FOREX cannot solve the problem
2) The direct reason is the hollowness of the industry (The
productivity of the United States )
3) The prime reason is the hegemony of the U.S. Dollar
4) China never pursues surplus in trade
5) Why does United States always rebuke China on
Economics and World trade?
FOREX Cannot Solve The Problem
•
Recently, some American economists, congressmen and interest groups
state that Chinese government controls the foreign exchange rate. The
reason why there was an imbalanced trade between the United States and
China is Chinese government lowered the Chinese FOREX rate. This is not
the first time that the United States pushes other countries' currency to
appreciate. The fact indicates that other countries' currency relatively
appreciate to U.S. would not lower the trade deficit of U.S.
•
Theoretically speaking, the change in FOREX rate can adjust the trade
deficit of U.S.. If the major individual partner countries' currency relatively
appreciate to U.S. Dollar, it can facilitate more export of U.S. and reduce
import at a certain extent in order to deflate the trade deficit. However,
FOREX rate is not the only one can influence the equilibrium of the
balance-of-payment of the United States. Historically, other countries'
currency appreciate only disturbed their own economy, but did not help
the United States to reduce the trade deficit.
FOREX Cannot Solve The Problem
• From this graph, we can see that the US dollar is relatively
depreciated to its major individual partner countries' currency
in recent decade, but it still appear an increased trade deficit.
FOREX Cannot Solve The Problem
•
Although its major individual partner countries' currency appreciate can
advance the export of U.S. in short run, this cannot decrease its trade deficit in
long run.
•
In fact, the exchange rate of the RMB against the U.S. dollar was 1 to 8.7 in
1994 when China unified its two-tier exchange rates and has risen by nearly 28
percent to approximately 1 to 6.8 according to the People's Daily Online. Xie
Taifeng, deputy dean of the School of Finance under the Capital University of
Economics and Business, said that there is not necessarily a relationship
between the growing surplus in China's balance of payments and the RMB
exchange rate, and even if the RMB is revalued, the problems concerning the
balance-of-payments surplus cannot be solved. He also said that the RMB has
risen over 21 percent against the U.S. dollar since the reform of the RMB
exchange rate regime in July 2005, but China's balance of payments surplus
still rose from 223.8 billion U.S. dollars in 2005 to 445.3 billion U.S. dollars in
2007, 445.1 U.S. dollars in 2008, and 393.2 billion U.S. dollars in 2009.
The Direct Reason is The Hollowness of The Industry
•
The trade deficit of U.S. does not represent a downfallen economy of the
United States, but represent the relatively decline of manufacturing during the
changing in industrial structure of the United States.
•
Since the 70s of the 20th century, the division of labour in this world has
become more and more clear. During this process, the industrial structure of
United States has changed a lot. Not only the number of labour-intensive
manufacturing transferred to other countries, but also some capital and
technology manufacturing, such as iron and steel industry, automobile
industry, petrochemical industry, electronic products and home appliances
manufacturing etc. transferred to abroad gradually.
The proportion of
manufacturing of the United States in GDP decreased to only 12%. Meanwhile,
the proportion of the high-tech communication and information industry,
finance, real estate, business, education, health and other services in the
economy etc. has significantly increased in GDP. Akio Morita, the founder of
Sony Corporation of Japan to the U.S., defined this issue as "deindustrialization". This phenomenon caused trade deficit absolutely.
The Prime Reason Is The Hegemony of The U.S. Dollar
•
The trade deficit of Unite States is also high related with its high consumption rate
and low saving rate. The consumption rate of Unite States is the highest in all
western countries. In U.S. people borrow money to consume very easily under its
money market, but less people save money. The government of Unite States is a
model that borrow money to consume. It borrow money from its country's citizen,
meanwhile, it sell its national debt to borrow money from other countries. Since the
products that made by the United States cannot satisfy its domestic consumption,
the United States need more import from other country. This actually increased the
trade deficit.
However, the high consumption rate of the United States cannot
explain the deficit fundamentally. There are many high consumption rate countries
in west, but they do not appear huge trade deficits. Why the Unite State can support
such a huge deficit?
That's because under the current international monetary
system, the United States do not have to repay its foreign debt. The huge trade
deficit reflects its hegemony in dollar.
•
However, the United States simply enjoy the benefits that U.S. dollar as the
international currency brought in, but it did not take a good responsibility for
stabilize the U.S. dollar.
The Prime Reason Is The Hegemony of The U.S. Dollar
•
Since the international financial markets is unstable, countries need more
U.S. dollar as a reserve in order to maintain their financial markets and to
stabilize the economic environment. And this requires countries export
more products to U.S. in order to get U.S. dollar.
•
As the issuance of the U.S. dollar, the United States need neither to hold
other countries' currency as a foreign exchange reserves nor to pay for its
trade deficit. All it need to do is turn on its machine to print its currency
and give to other countries. Of course, this will bring depreciation of the
U.S. dollar, but the bad effects of this devaluation on U.S. dollar was not
borne by the United States. The devaluation will lead to a redistribution of
benefits to the currency issuing country. Therefore, the United States get
the benefits from the depreciation of the dollar, and the loss is borne by
other countries that reserved U.S dollar.
•
Therefore, it is very easy to see that the trade deficit of the United States
was not caused by China, but was caused by the fallacious international
monetary system.
China Never Pursues Surplus In Trade
•
China enjoyed consecutive trade surplus only after 1994 and in most
of the years, trade surplus accounted no more than 3 percent of
China's Gross Domestic Products (GDP), the Chinese Premier Wen
Jiabao said. China started to turn to boosting domestic demand and
increasing imports to solve the problem very early, and has recently
launched an unprecedented stimulus program to bolster domestic
demand, he said.
•
China's trade surplus dropped by 34 percent in 2009 from the 2008
level, and was down 42.5 percent during the first half of 2010 on a
year-on-year basis, Wen said, adding that it now accounts for 2.2
percent of the GDP, which is at a reasonable level by world standards.
China Never Pursues Surplus In Trade
•
China will continue to increase imports from the United States. At
the same time, the United States should recognize China's market
economy status and ease control over exports to China so as to
promote free trade, Wen said.
•
He noted that there are nearly 60,000 U.S. investment projects in
China. In 2008, U.S.-owned enterprises in China reported 146.7
billion U.S. dollars in total sales, 72.2 billion dollars in exports and
nearly 8 billion dollars in total profit.
China is now one of the
biggest holders of U.S. Treasury bonds and China's investment in
the United States has been growing rapidly, Wen said.
Why Does United States Always Rebuke China on
Economics and World Trade?
•
It is no reason that the Unite States always blame China for its trade
deficit. In other words, even China satisfy all the requests that the
United States wanted, as long as the United States continue to keep its
dollar hegemony, the trade deficit of the United States would not be
changed at all. It is impossible that the economists and politicians of
the United States do not know the reason, but they continue to blame
China for the trade deficit in order to achieve its internal and external
purposes.
•
The internal purpose is to transfer the conflicts in its own country, and
continue to keep its dominance and protect the benefits of its
monopolists. It is advantaged for International financial monopoly
capitalism to get profits that the economics become virtual. However,
a huge number of unemployment is caused by the hollowness of the
industry in the United States.
Why Does United States Always Rebuke China on Economics
and World Trade?

As the figure shows, form 1979 to 2004,
the mean after-tax income for the top 1%
increased by 176%, compared to an
increase of 69% for the top quintile
overall, 21% for the middle quintile, 17%
for the second quintile and only 6% for
the bottom quintile.
In contrast, the
middle fifth of the population, which has
20 times more people in it, received 15%
of the national after-tax income in 2004,
down from 16.5% in 1979. The bottom
fifth received 4.9% of the income in 2004,
down from 6.8% in 1979 according to
CBO data.
•
Source: http://www.cbpp.org/files/1-23-07inc.pdf
Why Does United States Always Rebuke China on
Economics and World Trade?
•
The rose in unemployment intensified the conflict. The United States
transferred its citizen’s attention to abroad in order to let them think the
jobs were obtained by Chinese. Undoubtedly, this is the most important
policy to transfer the conflict of U.S. into China.
•
The external purpose is to suppress the development of China in order to
protect the status of its hegemony in the whole world. As the only
superpower country, the United States obviously does not want any
country can replace it. Moreover, China is the country that with the most
population and with a socialist system. Thus, the United States is mainly
suppressing the economy of China. However, even the United States stop
importing goods from China; it cannot reduce the trade deficits or
decrease the unemployment rate.
•
In conclusion, there are many complicated reasons that the trade deficits
of the United States are increase, but not caused by China for sure. The
United States should find the problems form itself, but not anyone else.
Reference
Karczmar, Mieczyslaw (1923), Deutsche Bank Research, Current Issues, “The U.S. balance
of payments: widespread misconceptions and exaggerated worries.” Page 1.
http://www.dbresearch.de/PROD/DBR_INTERNET_DEPROD/PROD0000000000180032.pdf
Karczmar, Mieczyslaw (1923), Deutsche Bank Research, Current Issues, “The U.S. balance
of payments: widespread misconceptions and exaggerated worries.” Page 10.
http://www.dbresearch.de/PROD/DBR_INTERNET_DEPROD/PROD0000000000180032.pdf
Hoffman, Michael. “The Exhange Rate and the Trade Deficit”(2005).
People's Daily Online, 11:11, June 18, 2010. “RMB exchange rate not 'seriously
undervalued'”. http://english.peopledaily.com.cn/90001/90778/90862/7029936.html
Xinhua, September 23, 2010. “China never pursues surplus in trade”.
http://www.china.org.cn/world/2010-09/23/content_20991880.htm
Sherman, Arloc and Aron-Dine, Aviva. January 23, 2007. Center on Budget and Policy
Priorities. “New CBO Data Show Income Inequality Continues To Widen After-Tax-Income
for Top 1 Percent Rose by $146,000 in 2004”. http://www.cbpp.org/files/1-23-07inc.pdf