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China's Economic Invasion: One Year Later
The Heritage Foundation ^ | 18. April 2006 | Tim Kane, Ph.D., Marc Miles, Ph.D., and Anthony Kim

Posted on 04/19/2006 12:56:38 PM PDT by 1rudeboy

One year ago, the chorus of the consensus told America that the dollar’s exchange rate was due to fall in 2005. Under relentless assault from cheap Chinese imports and facing a record trade deficit, the dollar had nowhere to go but down. The influential Economist magazine went so far as to say, “[t]he deficit is unsustainable: sooner or later it will need to shrink, and that will involve a cheaper dollar.” Politicians and pundits predicted economic trauma at the hands of outsourcing. Time has proven them wrong. What the U.S. needed then and needs now is to stick to the reliable keys to growth: low tax rates, deregulation, limited government, and especially free trade.

 

A Dollar – Deficit Link?

The U.S. economy did set two records last year. First, 2005 saw a new record trade gap. Imports to the U.S. exceeded exports by $724 billion, or 5.8 percent of GDP. Second, more Americans were employed than ever before in history, arguing against those who preached doom and gloom.

 

The data continue to support our contention of last May that the trade deficit is not the signal to watch: “This is all wrong... Many economists and the weight of history suggest that the trade deficit, a symptom of investment capital inflows, is a sign of national economic strength.”[1]  Additionally, two papers published last spring pointed out the lack of a historical relationship between currency values and trade deficits.[2] Indeed, despite the widening trade gap, the dollar gained value against other currencies.

 

 

The January 5, 2006, Economist admits that the dollar pessimists “were all wrong.” Yet the conventional wisdom of “trade hawks” is again resurgent, arguing that trade deficits are unsustainable and the dollar cannot hold. Last week, the government reported the third deepest trade gap on record, with imports outweighing exports by $65.7 billion. Current exchange rates, however, appear normal compared with exchange rates over the last few decades.

 

Unless Congress moves from protectionist rhetoric to protectionist legislation, there is no reason to expect the dollar to slide significantly. Trade flows are the “tail of the dog,” as Fed Chairman Ben Bernanke once explained. From time to time the dollar does fall when the world’s investors lose confidence in the superiority of America’s institutions and markets. Sadly, congressional hostility to the U.A.E. port deal was a bipartisan embarrassment and isn’t likely to reassure the world that America is as free and fair as it proclaims. Equally troubling is the Schumer-Graham proposal in the U.S. Senate to place trade barriers on imports from China.

 

The Chinese Invasion

According to the last week’s data from the Department of Commerce, the U.S. trade deficit with China was $13.8 billion in February. In 2005, the U.S. trade deficit with China grew by 25 percent to $202 billion. That amounts to nearly twice the $103 billion bilateral deficit in 2002. The ratio of imports to exports with China is now 5 to 1, perfect for the “Chinese invasion” storyline. The U.S.-China deficit’s growth probably won’t continue, but not because it can’t. Consider these points:

We should cheer the triumph of capitalism and its alleviation of poverty within China, as well as its benefits for American consumers and shareholders. The only point of debate is whether American workers’ wages are suffering due to trade with China, but there is no clear evidence of wages “racing to the bottom.” Instead, China is experiencing a severe labor shortage that is driving wages up rapidly in a “race to the top”—the level of free-market workers.

 

The real dangers to America are not free trade or China’s currency. That’s not to say there aren’t smart policies that should be taken to curb abuses of fair trade, rather that protectionism and currency haggling aren’t part of the smart mix. The real danger is that Congress will try to fix what is not broken and adopt a mercantilist policy of import limitation. Congress would do well to stick to the reliable keys to growth spelled out in The Heritage Foundation’s Index of Economic Freedom: strong property rights, low tax rates, low regulation, limited government, and especially free trade.

 

Tim Kane, Ph.D., is Director of, Marc Miles, Ph.D., is Senior Fellow in, and Anthony Kim is Research Associate in, the Center for International Trade and Economics at The Heritage Foundation.



[1] Tim Kane, “The Brutal Price of a Dollar,” Heritage Foundation Backgrounder No. 1855, May 31, 2005, at http://www.heritage.org/Research/TradeandForeignAid/bg1855.cfm.

[2] See Ibid. and Tim Kane and Marc Miles, “Trade Deficits, Dollars, and China: Wrong Lessons Make Dangerous Policy,” Heritage Foundation WebMemo No. 743, May 12, 2005, at http://www.heritage.org/Research/Economy/wm743.cfm.

[3] A.B. Bernard, J.B. Jensen, and P.K. Schott, "Importers, Exporters and Multinationals: A Portrait of the Firms in the U.S. that Trade Goods," NBER Working Paper No. 11404, June 2005.

 


TOPICS: Business/Economy; Foreign Affairs; Government
KEYWORDS: china; deficit; heritagefoundation; surplus; trade
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To: expat_panama
They don't buy raw materials from us with their export earnings. If we sold them lots of say, lumber and iron ore, then there wouldn't be as much of a trade deficit.

Looks like they have been right along, but t you should know that the one actually doing the country actually doing the manufacturing gets the lion's share of the financial reward. This is what separates advanced countries from Third World. Take a look at this Frontline investigation from just three years ago in 2003, and things are worse today:

Yvonne Smith, the communications director at the Port of Long Beach, literally sees the imbalance in U.S.-China trade. She reports that through Long Beach alone, the U.S. is importing $36 billion in goods yearly from China and exporting just $3 billion. By her account, the mix of products is very unfavorable to the U.S.

"We export cotton, we import clothing," Smith reports. "We export hides, we bring in shoes. We export scrap metal. We bring back machinery. We're exporting waste paper, we bring back cardboard boxes with products inside them."

Overall, the U.S. trade deficit with China reached a record $124 billion dollars in 2003 and the figure is headed even higher this year. Today, U.S. imports from China outpace U.S. exports to China by more than five to one, and the deficit shows no signs of abating.

These deficits are much larger than the trade deficits that the United States experienced in the 1980s and 1990s with Asian trading partners such as Japan. Put in historical perspective, America's current trade deficit with China is roughly double what it was at its height with Japan in the mid-1980s, when trade frictions between the U.S. and Japan led Sen. Lloyd Bentsen (D-Texas) to famously declare on the floor of the U.S. Senate: "We're in a trade war, and we're losing it."


261 posted on 04/28/2006 3:27:33 PM PDT by Paul Ross (We cannot be for lawful ordinances and for an alien conspiracy at one and the same moment.-Cicero)
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To: Paul Ross

Well, if the communications director for the Port of Long Beach stated it, it must be true.


262 posted on 04/28/2006 3:33:23 PM PDT by 1rudeboy
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To: 1rudeboy
I congratulate you on making it to this point faster than I.

Oh yeah, then who is "I" and who is "you" --and, and what about "it"????

(How am I doing Hedge-- have I got it down right?)

263 posted on 04/28/2006 3:35:21 PM PDT by expat_panama
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To: B4Ranch

If you wish to elaborate, please contact me on the forum, and not in private. Thanks in advance.


264 posted on 04/28/2006 4:04:15 PM PDT by 1rudeboy
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To: Paul Ross
Looks like they have been right along, but t you should know that the one actually doing the country actually doing the manufacturing gets the lion's share of the financial reward.

How much reward does China get when they have to keep their currency artificially low? How much do you figure their currency is undervalued?

I hope these questions aren't too difficult for you to understand. I'll try to keep them simple.

265 posted on 04/28/2006 4:05:31 PM PDT by Toddsterpatriot (Why are protectionists so bad at math?)
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To: Paul Ross
...the one actually doing the country actually doing the manufacturing gets the lion's share of the financial reward...

Sounds like your take is that China buys raw materials from us, makes products out of them, and then sells them back to us, and that this makes the Chicoms rich at our expense.  In other words, stupid old Americans are spending big piles of money buying Chinese made goods and all that money is going to China making them rich and making Americans poor.   We hear this from a lot from PBS pundits like the one you linked to, as well as from other equally extreme Bush-bashers.  It never makes sense, which is why it never comes with a complete set of hard numbers,

If it were true then Americans would be getting poorer.  We're not; we're getting richer.  One reason that trade with China can't hurting us is because it represents about one percent of total American commerce (gdp).  Another reason is that out of that entire $150 billion China did get from stocking the shelves at Wall-mart, it only spent $25 million on hides and cotton.  It spent the remaining $125 billion on US stocks, T-bills, and real estate.  It's that balance of payments we were talking about.  It always evens out.

OK, maybe you don't care if we're getting richer --you're simply not happy about how this looks with that out-of-control trade deficit.  Fine.  Just remember that my offer to buy a Chinese company would have made it less.

266 posted on 04/28/2006 5:25:30 PM PDT by expat_panama
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To: expat_panama
trade with China can't hurting us = trade with China can't hurt us

 

(stupid Wall-mart Chinese keyboard)

267 posted on 04/28/2006 5:37:10 PM PDT by expat_panama
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To: 1rudeboy
Well, if the communications director for the Port of Long Beach stated it, it must be true.

Your disdain for the American people is troubling.
268 posted on 04/28/2006 7:57:02 PM PDT by hedgetrimmer ("I'm a millionaire thanks to the WTO and "free trade" system--Hu Jintao top 10 worst dictators)
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To: expat_panama

Again I wonder why an expatriate is so anxious to push China to the American people. Why,again, are you an expatriate?


269 posted on 04/28/2006 7:58:08 PM PDT by hedgetrimmer ("I'm a millionaire thanks to the WTO and "free trade" system--Hu Jintao top 10 worst dictators)
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To: hedgetrimmer

What the heck are you talking about now? She works for the Port of Long Beach. That means she works for the UN, and therefore is not American.


270 posted on 04/28/2006 8:56:34 PM PDT by 1rudeboy
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To: 1rudeboy
That means she works for the UN Chinese, "free trader".
271 posted on 04/28/2006 9:00:08 PM PDT by hedgetrimmer ("I'm a millionaire thanks to the WTO and "free trade" system--Hu Jintao top 10 worst dictators)
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To: 1rudeboy
Well, if the communications director for the Port of Long Beach stated it, it must be true.

You honestly dispute the facts? Better check with our own Commerce Dept. You'll find she was right-on.

Guess you better put up or shut up.

272 posted on 04/29/2006 5:01:03 AM PDT by Paul Ross (We cannot be for lawful ordinances and for an alien conspiracy at one and the same moment.-Cicero)
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To: Paul Ross
I'm sure this woman is a complete export on waste paper exports. /sarc.
And note that she does not provide any numbers, but the article does. In other words, I'm not disputing the article, but her brain-dead comment (that you felt important enough to bold).
273 posted on 04/29/2006 5:07:02 AM PDT by 1rudeboy
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1st "export" s/b "expert."


274 posted on 04/29/2006 5:07:49 AM PDT by 1rudeboy
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To: hedgetrimmer
Why,again, are you an expatriate?

Clearly it was never purely arbitrary, and conveyed more than he intended. The import of which has never been explained, with any plausible credibility.

Until the last month or so, however, he has been less irrational, and frankly less unconcerned for facts, the issue of national security... or civility than his communist-enabling cohorts.

He has recently evidently signed up with their unthinking and callow Agenda.

Their Motto = "Me First, Hell With the Rest."

Note his silly little ploy to make the reverse argument, basically, that well, if Communist buying of U.S. debt (which he misattributes to Corp. securities) is long term bad for the U.S., then we should do the same. He imagines mistakenly that he has caught the national security defense consensus in a conundrum. Of course, not realizing his errors of assumption, he has not even come close. Because the same rules don't apply in this bilateral situation that he assumes are universal. There is a major disconnect in the two nations.

The fact is, China is still a totalitarian, malific, non-transparent, duplicitous, communist state bent on acquiring all essential military-industrial know-how advantage over the U.S...the "main enemy."

And once accomplished, and at a moment of optimal war timing, nationalization is in the cards. Indeed, it is blatantly an ever-present "Sword of Damocles" threat that looms over the Westerners the way they restrict US investments.

As you and I know, their companies, especially their oil companies, are basically fronts set up by the CCP. If Exxon, say, tried to buy CNOOC (SNP)...and change its management to be pro-Western...it couldn't. Majority control stays communist. Surprise. But its apparently okay for them to cherry-pick our oil and rare earths asset-holding corps. The communist chinese...and their influence operatives... are quite okay with being hypocritical.

One of the clearest signs missed by the faux free traders that China remains totally controlled still by the CCP is the clamoring of their new industrialist cadre demanding to get higher Party rank. This is Dispositive evidence of where the actual Power remains firmly and safely entrenched in their system.

Meanwhile they fully exploit their 'free trade' benefits...while increasingly evading their obligations...as noted by Ambassader Peter Allgeier.

Their whole economy is a game of Three Card Monty designed to suck in Western technology, industry, and and capital. All to be converted to Communist ownership...initially through covert means..."partnerships", "illicit IP misappropriation" etc...and ultimately a brazen declaration. Which I predict will happen if we push hard enough to insist that they play by the rules required by the WTO. It will blow up in our faces...because the ones calling the shots never intended to change...and still don't.

275 posted on 04/29/2006 5:59:33 AM PDT by Paul Ross (We cannot be for lawful ordinances and for an alien conspiracy at one and the same moment.-Cicero)
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To: 1rudeboy
1st "export" s/b "expert."

Better go back to bed, Rude!

276 posted on 04/29/2006 6:01:14 AM PDT by Paul Ross (We cannot be for lawful ordinances and for an alien conspiracy at one and the same moment.-Cicero)
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To: A. Pole; hedgetrimmer; Havoc; Aliska; neutrino; chimera; Sam the Sham; Willie Green; B-Chan

ping!


277 posted on 04/29/2006 6:08:06 AM PDT by Nowhere Man (Greystone, I'll miss you (5-12-2001 - 4-15-2006) RIP little buddy.)
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To: expat_panama
...and all that money is going to China making them rich and making Americans poor.

Hello...TRADE DEFICIT.

I know that is apparently just too much for your to bear...that you can be wrong. But face it. You are.

We hear this from a lot from PBS pundits like the one you linked to, as well as from other equally extreme Bush-bashers.

Actually the article never once mentioned Bush, or condemned his policies.

It never makes sense, which is why it never comes with a complete set of hard numbers,

Actually, that is your problem. You never explain the dizzying increase the Chi-Comms are realizing in their currency hoard. If they are changing...just why isn't this pile of loot getting invested in their own economy, distributed in productive mechanisms to "the people" and the supposed "middle class"...but instead remains held by the Government's thinly-disguised apparatus and fronts.

278 posted on 04/29/2006 6:11:58 AM PDT by Paul Ross (We cannot be for lawful ordinances and for an alien conspiracy at one and the same moment.-Cicero)
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To: hedgetrimmer; All; admin
Again I wonder why an expatriate is so anxious to push China to the American people. Why,again, are you an expatriate?

At first I took your line of attack (expatriates don't love America) as being just personal so I ignored it.  The fact that you're bringing it up repeatedly means I need to once and for all explain something.

If you'd have asked me last week I'd have told you that I was not an expatriate, because I was home in Texas.  An expatriate is someone who happens to be outside the country he was born in, like say, a soldier in Iraq.   Deployed military love America and they are not "ex-patriots", people who are no longer patriotic.  I can't imagine that you'd scorn these heroes upon their return like the 60's hippies did.  Expatriate or no, it would be morally wrong 

There's another greater problem with this attack besides the moral issue, it's one of security.  Here are some pictures of three expatriates who failed to maintain adequate personal security and stayed overseas permanently:

The three kidnapped missionaries, Dave Mankins, Mark Rich, and Rick Tenenoff, were working in the village of Pucuro, about 15 miles from the Panamanian border with Columbia. They were taken from the village into Colombia.

The Mankins family consists of Dave
(Pictured), born in 1949, who was the oldest of the three hostages.  He and his wife, Nancy have two children, Sarah and Chad. Both children have married while their father was held hostage. David, however, had no knowledge of this. Chad and his wife, Janeene are members of New Tribes Mission. Sarah and her husband, John (Skees) live in Sanford, FL. Dave and Nancy consider Jacksonville their U.S. home.

Dave and Nancy Mankins went to Panama in 1984. There, Dave studied Kuna culture and language and translated Bible lessons into the Kuna language.

Mark Rich
(Pictured)
, born in 1969, was the youngest of the three hostages. He and his wife, Tania were born abroad to American parents. Because they are both third generation missionaries, they have lived most of their lives overseas. Mark and Tania have two daughters:  Tamra and Jessica. The family had lived in Pucuro for only six months before Mark was kidnapped. He and Tania were just beginning to study the Kuna culture and language. Mark was a hostage almost twice as long as he had been married to Tania.

The Tenenoff family is made up of Rick (Pictured), born in 1956, and his wife, Patti and their three children:  Dora, Connie, and Lee. Just like the Rich family, two of these children were so young when their father was captured that memories of him are hard to recall. Rick and Patty have spent most of their lives in Florida, where their families still reside. The Tenenoffs arrived in Panama in 1986. Rick studied Kuna culture and language, wrote a Kuna dictionary and was teaching Bible studies.

According to the NTM website, on Sept. 10, 2001, members of NTM's Crisis Committee and the wives of Dave Mankins, Mark Rich and Rick Tenenoff agreed that, given the available evidence, it was time for a family closure to the 1993 kidnapping.

The website states:"Information gathered by NTM and others in years of painstaking and often dangerous investigation has led to the definite conclusion that Dave Mankins, Mark Rich and Rick Tenenoff were killed by their captors in mid-1996."

[This is the 10th anniversary of the deaths; it might be nice to remember them in our prayers.]

This thread has to do with whether the state should allow private citizens to buy and sell things to foreigners.  Ordinarily I wouldn't mind going off topic bragging about my accomplishments, even if puts my own life at risk.  After all, there's the quote:  "Is it thy wish to die upon thy bed, or to shed thy life-blood on the dust, a martyr"   --but this would go beyond off-topic to thoughtlessly selfish.  I've no right to put my wife and kids at risk too.  The group that claimed credit for the murders was a "group called December 20 Torrijist Patriotic Vanguard (VPT-20)".  Same family name as Panama's current president.

I really enjoy our butting heads over trade topics --sometimes you're the only freeper that pings me.  The admin folks try to pull posts that may pose a physical threat by prying into personal info, so if you stay on topic your comments won't get deleted.

279 posted on 04/29/2006 6:32:17 AM PDT by expat_panama
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To: expat_panama

No one asked you anything personal. Your handle is expat panama. If you don't want anyone to know that about you,you should have chosen a different screen name. You made a mistake by selecting that handle if you feel it reveals too much information about you.


280 posted on 04/29/2006 7:21:55 AM PDT by hedgetrimmer ("I'm a millionaire thanks to the WTO and "free trade" system--Hu Jintao top 10 worst dictators)
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