China tells US to put its house in order

The Financial Times ^ | November 22 2004 | James Kynge

[CDB]

“That is not sustainable,” he added. “The appreciation of the RMB will not solve the problems of unemployment in the US because the cost of labour in China is only three per cent that of US labour. They should give up textiles, shoe-making and even agriculture probably."

[jriemer]

Uhm, that article is talking about the Japanese economy with respect to the Chinese. Not the U.S. with respect to the Chinese.

That was the Japan-China trade numbers. "2003 totaled $132.4 billion, marking a record high for the fifth consecutive year"

Here are the US-China Trade numbers.

---

---

Trade with China : 2003

NOTE: All figures are in millions of U.S. dollars.

Month	Exports	Imports	Balance
January 2003	2,069.8	11,403.5	-9,333.7
February 2003	2,048.7	9,629.6	-7,581.0
March 2003	2,423.1	10,110.0	-7,686.9
April 2003	2,121.9	11,521.9	-9,399.9
May 2003	1,984.3	11,884.7	-9,900.4
June 2003	2,119.6	12,127.3	-10,007.7
July 2003	2,067.4	13,438.6	-11,371.2
August 2003	2,034.4	13,764.9	-11,730.4
September 2003	2,091.0	14,747.5	-12,656.5
October 2003	2,778.3	16,458.3	-13,680.0
November 2003	3,319.7	14,156.9	-10,837.3
December 2003	3,309.6	13,192.8	-9,883.2
TOTAL	28,367.9	152,436.1	-124,068.2

• 'TOTAL' may not add due to rounding.
• Table reflects only those months for which there was trade.
• CONTACT: Data Dissemination Branch, U.S. Census Bureau, (301) 763-2311
• SOURCE: U.S. Census Bureau, Foreign Trade Division, Data Dissemination Branch, Washignton, D.C. 20233

===
The 2003 US Trade imbalance with China at $124B USD is less than the Japan-China trade imbalance of $132B USD. Both sets of numbers are from US and Japanese government sources respectively.

[Bikers4Bush]

So we're second to Japan then. Certainly still in a position to influense their economy.

[Bikers4Bush]

You don't see why I wouldn't believe what the chicoms say? Other than because they're thieving commies?

What's so great about the tarrifs? You are of course aware that part of the reason we were able to beat the USSR without open war was because we weren't propping up their economy are you not?

In order to beat the chicoms we're going to have to jack up the prices of their goods. We can't, nor should we be forced to, compete with slave labor wages.

It's time to stick it to them.

[Sender]

I don't think we should outright stop imports, but something has to change. Since Chinese labor costs only three percent of US labor, manufacturing shift is inevitable. And I'm not willing to move to a hut and eat rice. If it were just a few shoddy products made in China, we could avoid them, but just about everything is made there now.

[Last Dakotan]

If everybody is arguing with me, I must be right.

[shorebreak]

Unfortunately, I think China is in a position to stick it to us.

Why the falling dollar? Well, one of the reasons is that China has switched about half of it's foreign reserves (dollars) to Euro's, dropping almost a trillion dollars in cash and T-Bills almost overnight. In South Bronx they call that a bitch slap.

This happened in parallel to similar moves by Russia, Europe, and several other nations across the globe. The primary reason for this is that since 1945, oil has sold for US dollars, forcing the world to invest in and hold on to us currency. Several nations have recently begun selling oil for Euro's, and consumer nations are rapidly dropping the dollar as they jump on the Euro express.

Hence the rapid decline of the dollar. Hence the need for a massive increase in Iraqi oil output (Iraq was the first nation to sell for Euro's before Bush stopped it) in order to flood the market with cheaper oil for sale in US dollars. And hence the need to stop the newly formed Iranian Oil Exchange, which is set up to enable the sale of oil in Euro's, contrary to the three existing exchanges which sell oil for dollars.

China has recently signed a 25 year trade agreement with Iran. In return, China will no longer be committed to the US dollar, hence the recent trillion dollar snub. The economic loss to the US from China alone is almost unbearable, forcing arrangements to be made for several other Asian countries, including Japan, to make up the difference and prop the economy. But this won't last long. We're in a downward spiral as long as nations continue to drop the dollar.

As things stand now, economically speaking China is in a position to call all the shots. If we impose sanctions, they can continue to shut us down by dropping investments. It becomes all or nothing for the US - capitulate to Chinese terms, or pull out completely. China's boldness comes from this knowledge.

And where does this place us in terms of competition? They won't raise prices. That will raise prices as high as the market will allow without hurting their bottom line. Even

In 2001 Bush told the Council of the Americas that he looks forward to the day when we have a free trade agreement with China. Even that will not increase prices in China, just as NAFTA has not raised wages in Mexico as promised to the Mexican people. It only lowered costs for American corporations. As the dollar continues to fail because the dollar is no longer needed for oil, hence global trade, the only obvious resolution that will bring the US into parity with the rest of the world (who's currencies also do not dominate international trade) will be a reduction in wages.

If you can convince that I'm wrong, please do so. Things look pretty grim the way I see it.

[oceanview]

what are they going to do with all their dollars? eat them?

[oceanview]

this is why MFN should never have been granted to them. the logical reply to this would be tariffs right now, our consumers support their entire economy, if we don't consume, they cannot produce.

[oceanview]

sure - but the issue is - will it work? will we be able to break their peg? we are essentially blackmailing the euro-zone and japan - either they help us get the china peg dropped, or the dollar will go lower against the yen and the euro, hurting them.

the issue is, with all these trade and MFN agreements we've entered into, do we have the "juice" to shake china off? its going to be close, we were foolish to enter into these agreements with china. if hurt our NAFTA goals with mexico. Now they are essentially engaged in a trade war with us, through use of the peg, and we have very few weapons to fight them with.

many of us warned you free traders this day would come.

[oceanview]

ping.

[Bikers4Bush]

They can't eat all those things they make and if we stop buying them there's nobody else waiting in the wings to snap them up.

[LowCountryJoe]

You are of course aware that part of the reason we were able to beat the USSR without open war was because we weren't propping up their economy are you not?

You are of course aware that that was done with sanctions (not tariffs) and that we did indeed buy stuff that filtered from the Soviet Union through other countries and became our imports as well as stuff that we produced that took the same "under-the-radar" trip. Many of China's businesses are actually American owned. We are spreading capitalism over there. We've been trading with China for years and they're becoming less communistic not more so. Now you advocate for restrictions?!?!

[oceanview]

but consumers won't stop buying them on their own - americans will do anything to consume, mortgage their homes, take on credit card debt at 20% interest - our populace is insane when it comes to consumption. unless the prices rise by getting them to drop their peg, nothing will happen because GATT and MFN and the WTO won't allow us to impose tariffs.

in the meantime, our economy continues to bleed good jobs (see Cingular and HP in the financisl news today for 2005) and create service jobs and government employment. And the trade and budget deficits are out of sight. Something has to give.

[Bikers4Bush]

We didn't buy a fraction from the soviets of what we buy from the chi coms.

None of china's businesses are American owned. It's all owned by the state. We just have contracts over there, no property. The chi coms could sieze it all tomorrow and nobody could stop them.

[oceanview]

just because they engage in western style economic development, doesn't mean they are "less communist" when it comes to their desire to knock off the US. they have a long term plan, we are playing right into their hands. China will never be an ally of the US (like post WWII Japan) absent some massive internal revolution.

[CasearianDaoist]

Well, one of the reasons is that China has switched about half of it's foreign reserves (dollars) to Euro

Where did you hear this?

[shorebreak]

As long as they have value they continue to trade 'em. The big issue is not whether China is "holding" dollars, but whether they are investing in US dollars by buying them or equivalent in T-Bills.

For over half a century, the world engaged in this strategy in order to meet their energy needs, and the US has profited enormously. Every time their was a mild recession, economists knew what the outcome would be. The Fed raised rates, foreign investment was stimulated, and we were balk on the straight and narrow.

This is no longer the case. The world now has an alternative to the dollar to meet their economic needs in terms of energy and trade. The Euro looks a lot better right now than the dollar. A raise in US rates is no longer a solution to a weakening economy.

There are three obvious solutions that occur to me. The short term solution is to destroy the catalyst that brought the US into this situation, meaning eliminate or engage those nations who are creating an economic shift by selling oil for Euro's. The longer term solution, short of war with Europe, is to find a way to blend economies. This would entail a loss of sovereignty but would minimize economic hardship in the US. The third possibility is to disengage from trade agreements and global objectives. America would, at dire economic cost, remove itself from global trade restrictions and become self sufficient once again.

My prediction is that option 1 is currently under way. This option will be continued until whatever administration is still in office has increased the budget deficits in order to keep up it's "War on Terror" to such an extreme that financiers and the banks who make up the Federal Reserve are choking on the profits.

At that point, the economy is sunk. The citizens of the world and the US are tired of war, and a proposal to have the US become pert of a regional economy in an emerging global system is welcomed by Americans, who simply want peace and prosperity. Option 2 is adopted.

Option 3 is never considered by anyone at the executive level.

[shorebreak]

As long as they have value they continue to trade 'em. The big issue is not whether China is "holding" dollars, but whether they are investing in US dollars by buying them or equivalent in T-Bills.

For over half a century, the world engaged in this strategy in order to meet their energy needs, and the US has profited enormously. Every time their was a mild recession, economists knew what the outcome would be. The Fed raised rates, foreign investment was stimulated, and we were balk on the straight and narrow.

This is no longer the case. The world now has an alternative to the dollar to meet their economic needs in terms of energy and trade. The Euro looks a lot better right now than the dollar. A raise in US rates is no longer a solution to a weakening economy.

There are three obvious solutions that occur to me. The short term solution is to destroy the catalyst that brought the US into this situation, meaning eliminate or engage those nations who are creating an economic shift by selling oil for Euro's. The longer term solution, short of war with Europe, is to find a way to blend economies. This would entail a loss of sovereignty but would minimize economic hardship in the US. The third possibility is to disengage from trade agreements and global objectives. America would, at dire economic cost, remove itself from global trade restrictions and become self sufficient once again.

My prediction is that option 1 is currently under way. This option will be continued until whatever administration is still in office has increased the budget deficits in order to keep up it's "War on Terror" to such an extreme that financiers and the banks who make up the Federal Reserve are choking on the profits.

At that point, the economy is sunk. The citizens of the world and the US are tired of war, and a proposal to have the US become pert of a regional economy in an emerging global system is welcomed by Americans, who simply want peace and prosperity. Option 2 is adopted.

Option 3 is never considered by anyone at the executive level.

[ZULU]

We should put our own house in order by re-building our industry so we don't have to pay money for cheap crap from Red China. They take our money and use it to build military equipment to threaten Taiwan, Japan, and ultimately - us.

[CasearianDaoist]

You have some strange notions about the Euro. It does not meet anyones needs for trade or energy. China is not pulling out of the dollar - it would bankrupt it. There are no fundamentals i the Euro, people are just parking money there. You are also very confused about both the intent and the affect of Fed rates, particularly in this case, but also historically. Take the Cater years: one of the reasons that interest rates got so high was Carter doing just what you say we have always done to get out of recession. Carter almost put us in a depression. The world economy is not such that it can be pulled out of recession merely by rate manipulation. We have in fact worked our way out of most recessions. You are quite wrong about both your historical analysis and the current situation. The Fed could support the dollar with higher rates, they just do not want to. Where are you getting your information for all of this doom and gloom? If the Chinese to not blink, there will be tariffs. If the EU goes ahead and starts selling arms to China there will be tariffs placed on the EU. The world is in denial about China, one serious global contraction and the game is up over there. It is a house of cards waiting to tumble, and tumble it will.

Relax. every thing is fine. Every one in a frenzy about all of this - most of it is more anti Bush media hype.

The intire would gepends on the American market - that is the source of all this international bitch - we are not going to be the driver anymore at the cost of our industry. It will be fine in the end.