Posted on 02/12/2005 10:23:21 PM PST by soccer_linux_mozilla
The U.S. trade deficit ballooned to an all-time high of $617.7 billion last year, pushed by soaring oil prices and Americans' insatiable appetite for everything foreign, from cars to toys and food.
The Commerce Department reported Thursday that the 2004 imbalance rose 24.4 percent from the previous year and marked the third year in a row that the deficit had set a record. The imbalance with China swelled by 30.5 percent to $162 billion, the highest ever with any country.
(Excerpt) Read more at forbes.com ...
"Americans' insatiable appetite for everything foreign,"
That's the line and they're sticking to it. Americans have no choice but buy foreign goods...we make practically nothing.
Propaganda is just rife in our society. They continue to sell us down the tubes and make it sound like it's our idea. Hmmmmm.
We are looking for low cost items, more bang for our buck. Retailers are giving it to us. The thing is, these items are made in China for the most part.
If you want to know our future with globalization, look at N. Italy. They lost tens of thousands of jobs to China and don't have the credit limits of America. The communist party has had a massive upswing in membership and is starting insurrections (granted mostly peaceful so far). Sooner or later, with our government spending like crack crazed sailors, Greenspan will raise interest rates enough to finally put an end to a lot of the plastic spending. Then the real interesting times start.
Walmart has done a lot to foster outsourcing. By demanding a yearly and constant 5% cost cut in its suppliers. At first it causes them to improve and stream line production (good), while it's aquisition volume makes it a key to fiscal survival. Well however, you can only stream line so far before you can't meet those yearly 5% cuts without moving overseas (bad). But the crap is cheap, almost as cheap as the social costs of retraining, higher crime rates, lower taxes, death of secondary businesses that supported the closed factories and their employees, etc.
Yeah, telling the socialist WTO where to shove it and putting massive tarrifs on China until it: 1. decouples its currency, 2. allows labor to really unionize and negotiate and 3. meets some minimal safety standards and 4. end prison labor.
bump
But somehow this article forgot to mention the good news that "The 2004 exports of goods and services ($1,146.1 billion) and 2004 exports of goods ($807.6 billion) were records." (Trade Highlights for 2004 from the Bureau of the Census.) (There are a few factors about exports made for re-importation that probably should be netted out, though even if they were, it probably would still be a record year for overall exports.)
Also in the good news from the foreign trade area from the same Census report:
Exports
* Exports in 2004 of $819.0 billion were a record.
* The 2004 exports of foods, feeds, and beverages
($56.3 billion); industrial supplies and materials
($203.6 billion); automotive vehicles, parts and engines
($88.2 billion); and consumer goods ($102.8 billion)
were records.
* The 2004 exports of capital goods ($331.1 billion)
were the highest since 2000 ($356.9 billion).
I had hoped that capital goods would have been a bit better, but still it is some progress. We can hope that the cheaper dollar should help more on the exports side for 2005, though if we don't do something about our level of imports, the cheaper dollar will mean that we will be paying more for the same volume of goods imported.
It's a pity that services are now getting close to a wash; we have run a good surplus in the past in services, but it's now dropped to less than $50 billion for 2004.
But the disturbing number is the rampant growth in the import of goods. In 2002, we imported $1.164 trillion in goods; in 2004, that had leaped to $1.473 trillion, a growth of 27% in two years. That's not a sustainable trend when our GDP is growing at 4% per year. (Figures from the Bureau of Economic Analysis.)
The good news is that exports also grew 17% in two years. If we could just manage to switch those two and get exports growing at a much faster pace than imports, then the trade situation would certainly be better.
It's not only hard to compete with, I believe that it is just wrong to trade with China. I think we should stop all trade with China: we are making a bellicose, totalitarian state wealthy, and this does not bode well for us or our posterity.
...and what if they stop buying our bonds? I believe they are now the second largest investor in T Bills, behind Japan, but ahead of Great Britain.
That would be debt.
The easy answer is that it would probably push interest rates up a bit. China is still accumulating treasury debt, as of the last TIC report.
The more complex question is what would Japan do. They have plenty of cash (both ready yen and dollars) that they could buy bonds with. In fact, they could easily buy all of China's Treasury holdings with cash on hand were China to decide to dump them on the market. My guess is that if China did dump (and were simply dumping and were not trying to crash the market with more complex financial maneuvers) that Japan would probably (but not certainly) make large buys since they have a lot invested in our Treasury debt. But who knows? Japan has actually cut its Treasury position just a bit itself in the last few months, while China is still accumulating Treasury debt.
But the fly in the ointment with all Japan/China scenarios is the huge trade between the two. The Bank of Japan is probably spending more time working on risk scenarios and internal planning with respect to China and the yuan than they have ever done in the past. Their traders is probably already loaded for bear if and when the Chinese float the yuan -- the real question is how will they play the game? Throwing a flight from dollar reserves by China into the mix is probably straining even the the think tank at BOJ.
I think I will stick with the easy answer "interest rates likely go up"; there are too many variables in flight scenarios to make any reasonable guesses. I hope that our own treasury is working on scenarios; some of our debt sales lately haven't attracted all that much buying interest, and I assume that this has caught someone at Treasury's attention.
In interesting contrast, the BOJ actually had a little misfire the other day when they went to go buy back JGBs and they didn't find as many out there to buy back as they wanted. It seems that the market is more interested in holding Japanese debt (and at some extraordinarily low rates) than it is in a cash position. (And Moody's has the bizarre position that Japan's sovereign debt is somehow much worse credit quality than the U.S.'s -- strange how the market doesn't agree.)
Good analysis. I'd add that if interest rates go up too much or too quickly then the housing market tanks in a big, big way. People will be angry if/when they wake up one day to discover they're upside down on their mortgages.
I heard on the BBC industrial report, WalMart buys 10% of the industrial out put of China. Can you imagine? All those banners in the stores, claiming American goods mean American jobs.
Other countries send us cars and electronics and all we have to do is send them little green pieces of paper? Brilliant!
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