Posted on 01/10/2010 7:22:50 AM PST by 1rudeboy
China’s share of world markets increased during the recession. It will keep rising
MANY people start the new year by resolving to change their old ways. Not China. On December 27th Zhong Shan, the country’s vice-minister of trade, declared that China will continue to increase its share of world exports. Figures due out on January 11th are expected to show that China’s exports in December were higher than a year ago, after 13 months of year-on-year declines. China’s exports fell by around 17% in 2009 as a whole, but other countries’ slumped by even more. As a result China overtook Germany to become the world’s largest exporter and its share of world exports jumped to almost 10%, up from 3% in 1999 (see chart).
China takes an even bigger slice of America’s market. In the first ten months of 2009 America imported 15% less from China than in the same period of 2008, but its imports from the rest of the world fell by 33%, lifting China’s market share to a record 19%. So although America’s trade deficit with China narrowed, China now accounts for almost half of America’s total deficit, up from less than one-third in 2008.
Trade frictions with the rest of the world are hotting up. On December 30th America’s International Trade Commission approved new tariffs on imports of Chinese steel pipes, which it ruled were being unfairly subsidised. This is the largest case of its kind so far involving China. On December 22nd European Union governments voted to extend anti-dumping duties on shoes imported from China for another 15 months.
Foreigners insist that the main reason for China’s growing market share is that the government in Beijing has kept its currency weak. But there are several other reasons why China’s exports held up better than those of its competitors during the global recession. Lower incomes encouraged consumers to trade down to cheaper goods, and the elimination of global textile quotas in January 2009 allowed China to increase its slice of that market.
How high could China’s market share go? Over the ten years to 2008 China’s exports grew by an annual average of 23% in dollar terms, more than twice as fast as world trade. If it continued to expand at this pace, China might grab around one-quarter of world exports within ten years. That would beat America’s 18% share of world exports in the early 1950s, a figure that has since dropped to 8%. China’s exports are likely to grow more slowly over the next decade, as demand in rich economies remains subdued, but its market share will probably continue to creep up. Projections in the IMF’s World Economic Outlook imply that China’s exports will account for 12% of world trade by 2014.
Its 10% slice this year will equal that achieved by Japan at its peak in 1986, but Japan’s share has since fallen back to less than 5%. Its exporters were badly hurt by the sharp rise in the yen—by more than 100% against the dollar between 1985 and 1988—and many moved their factories abroad, some of them to China. The combined export-market share of the four Asian tigers (Hong Kong, Singapore, South Korea and Taiwan) also peaked at 10% before slipping back. Will China’s exports hit the same barrier as a result of weakening competitiveness, or rising protectionism?
An IMF working paper published in 2009 calculated that if China remained as dependent on exports as in recent years, then to sustain annual GDP growth of 8% its share of world exports would rise to about 17% by 2020. To consider whether that was feasible, the authors analysed the global absorption capacity of three export industries—steel, shipbuilding and machinery. They concluded that to achieve the required export growth, China would have to reduce prices, which would be increasingly hard to manage, whether through productivity gains or a squeeze in profits. In many export industries, particularly steel, margins are already wafer-thin.
However, China’s future export growth is likely to come not from existing industries but from higher-value products, such as computer chips and cars. Japan’s exports also moved swiftly up the value chain, but whereas this was not enough to support durable gains in its market share, China has the advantage of capital controls that will prevent its exchange rate rising as abruptly as Japan’s did in the 1980s. When China does eventually allow the yuan to rise, it will do so gradually.
Another big difference is the vastness of China’s economy. China consists, in effect, of several economies with different wage levels. As Japan moved into higher-value exports, rising productivity pushed up wages, making old industries, such as textiles, uncompetitive. In China, as factories in the richer coastal areas switch to more sophisticated goods, the production of textiles and shoes can move inland where costs remain cheaper. As a result China may be able to remain competitive in a wider range of industries for longer.
Foreign hostility to China’s export dominance is growing. Paul Krugman, the winner of the 2008 Nobel economics prize, wrote recently in the New York Times that by holding down its currency to support exports, China “drains much-needed demand away from a depressed world economy”. He argued that countries that are victims of Chinese mercantilism may be right to take protectionist action.
From Beijing, things look rather different. China’s merchandise exports have collapsed from 36% of GDP in 2007 to around 24% last year. China’s current-account surplus has fallen from 11% to an estimated 6% of GDP. In 2007 net exports accounted for almost three percentage points of China’s GDP growth; last year they were a drag on its growth to the tune of three percentage points. In other words, rather than being a drain on global demand, China helped pull the world economy along during the course of last year.
Foreigners look at only one side of the coin. China’s imports have been stronger than its exports, rebounding by 27% in the year to November, when its exports were still falling. America’s exports to China (its third-largest export market) rose by 13% in the year to October, at the same time as its exports to Canada and Mexico (the two countries above China) fell by 14%.
Some forecasters, such as the IMF, expect China’s trade surplus to start widening again this year unless the government makes bold policy changes, such as revaluing the yuan. However, Chris Wood, an analyst at CLSA, a brokerage, argues that China is doing more for global rebalancing than America. Rebalancing requires that China spends more and America saves more. Mr Wood argues that China is doing more to boost domestic consumption (for example, through incentives to stimulate purchases of cars and consumer durables, and increased health-care spending) than America is doing to boost its saving. America’s total saving rate fell in the third quarter of last year to only 10% of GDP, barely half its level a decade ago. Households saved more, but this was more than offset by increased government “dissaving”.
Strong growth in China’s spending and imports is unlikely to dampen protectionist pressures, however. China’s rising share of world exports will command much more attention. Foreign demands to revalue the yuan will intensify. A new year looks sure to entrench old resentments.
“Amen. What is called ‘free trade’ is government to government lobbyist agreements.
Trade is we buy product from you and you buy product from us. It is not we buy product from you and trade you jobs, factories and Treasuries in return. That’s the loony deals that have caused economic misery.”
Bears repeating!!
It is knee jerk bigotry. They still worship at the polished black shoes of Pat Buchanan
The term “Free Trade” is rather misleading.
Lol, just to be clear, it is your contention that there is no relationship between US budget deficits and national debt, and the US trade deficits???
“The term “Free Trade” is rather misleading.”
One among many...the worst is ‘reform’...run like hell when you hear that one.
Free trade: you tax my products 0%, and I'll tax your products 0%.
And, actually, I made no mention of free trade agreements with European nations. I said we have something approaching actual free trade, due to long historical relationships that evolved into pretty open trade.
It's when the US enters all these "free trade" agreements that we end up with enormous trade deficits. NAFTA took us from a $1 billion surplus with Mexico to a $40 - $50 trade deficit.
You: That's what is called "free trade," silly.
No, silly, demanding equal access is NOT free trade. HAVING equal access is free trade. We seldom get beyond the demanding stage with all too many nations.
Free trade simply does not exist between the US and most nations. We've agreed on that. And the US is giving away far too much while waiting for others to open their markets, and the wait is decades old in all too many cases.
The Asian model for growth lives, and thrives, and is making inroads into South American and other areas.
LOL! Just to be clear, you claimed there was a relationship. A close relationship. What does my contention have to do with your claim?
All true, and that cute little, ancient word "trade" is now used to encompass all sorts of practices that have little to do with "trade": transfer of manufacturing facilities, job exports, capital exports, technology transfer, and buying next to nothing that is an authentic product created by the people of the nation we are "trading" with.
Actually, our so-called "trade" policy is by far our biggest foreign aide program. All sorts of motives are behind which is euphemistically called "trade" policy.
It would be interesting to see how india, brazil, russia, mexico, Skorea, and italy look on that graph.
Looks to me like The world is a changin real fast. I’m guessing the world is about to be steamrollered by china and india.
Lol, because if you can't even discern an opinion about two aspects of our economy that are so large, and the subject of so much discussion, there's no reason to think you'd be able to understand any discussion of the relationship:
Again: Do you contend there is no relationship between our budget deficits and national debt, and our ever growing trade deficits?
That's a simple question. Someone with your great interest in these matters should already have put your thoughts to this question and derived an answer.
And, another simple question: Do you believe if we produced more energy from domestic sources, and reduced imports, that it would improve our economy? Lots of conservatives seem to think so. What about you?
I don't think that word means what you think it means.
Again: Do you contend there is no relationship between our budget deficits and national debt, and our ever growing trade deficits?
There is no relationship between the budget deficit and the trade deficit.
Please ping me when you post your formula proving me wrong.
Do you believe if we produced more energy from domestic sources, and reduced imports, that it would improve our economy?
Producing more energy here would improve our economy, whether it reduced imports or not.
Lol, so, how would it improve the economy?
More jobs? That means more income and more income taxes.
More oil company profits? That means more corporate income taxes.
So, more jobs, and more tax revenue for the feds, and therefore, a reduction in the federal deficit (no matter how large or small the deficit is, a marginal increase in revenue decreases the deficit).
And, any significant increase in domestic crude production, particularly in the continental US, will reduce imports, whether or not domestic demand increased significantly. Still, we'd need lesser imports, and the greater world crude production would lower the price, whatever the supply and demand situation might be, and that lowers cost for business, and increases profits for business. And that domestic production would reduce the trade deficit by that incremental amount, and also reduce the budget deficit as long as oil producers were paying taxes.
And, your demand for a formula is as silly as are most all your posts concerning economics. From now on, you provide formulas to prove every assertion you make.
And discern means to recognize or detect or comprehend: that the budget deficit and national debt, and the trade deficits, are related. - But anyone with any knowledge of economics already knows that. But many do have political reasons for denying it.
Time for other things this afternoon.
Lol, so, how would it improve the economy?
You really need me to explain how an increase in Gross Domestic Product improves the economy? LOL!
So, more jobs, and more tax revenue for the feds, and therefore, a reduction in the federal deficit
Because spending remains the same when revenues increase? LOL!
And, your demand for a formula is as silly
I only demand a formula when someone makes a silly claim that can be refuted in 10 seconds.
And discern means to recognize or detect or comprehend
Like when I detected your claim was an opinion, not based in fact?
Here's a question for you, did the budget deficit increase from 2008 to 2009? Here's another one, did the trade deficit increase from 2008 to 2009?
Let me know if you ever figure those out.
Time for other things this afternoon.
Writing more jokes?
So many deficits. We got the budget deficit plus all those trade defiicits --must at least seven of those buggers-- In the mean time we got one hell of nice capital surplus.
OK, this is a bit past my bed time but I just had to take issue with the budg/trade deficit mix-up. Hey Will, any chance you might want to say what you know about the trade deficit. Like, are you talking about exports-imports or something?
Can you really be as hopelessly ignorant as you seem?
Increased domestic energy production creates all sorts of economic activity: jobs, crude oil sales, royalties to mineral rights owners, profits, and taxes and revenue too government at all levels. Increased tax revenues decrease the budget deficits.
And increased domestic crude oil production decreases imports when that production is used rather than imports. And, if that increased production is exported, the amount exported will be netted against imports, thereby decreasing crude oil imports and deceasing the trade deficit. And that goes for many other products that might be produced domestically or imported. But, since crude oil is often almost half our trade deficit, it’s the best example around.
So, once again, trade deficits and budget deficits are very often related, whether you can understand it or not.
If you knew what the trade deficit was, you certainly wouldn't be asking that question. The trade deficit exists because our imports are perpetually greater than our exports, at least for the past several decades.
Because I don't believe your claim? LOL!
Increased domestic energy production creates all sorts of economic activity
Increased domestic oil production is a great idea. It will grow our economy and increase government tax revenue. If you want to claim that, I don't think anyone will disagree.
So, once again, trade deficits and budget deficits are very often related
Very often related? Changing your claim already?
If you are correct, you should be able to show that when budget deficits rise, trade deficits rise. Or is that causation backwards? Maybe when trade deficits rise, budget deficits rise?
whether you can understand it or not.
Just waiting for you to prove it.
I don't have to prove it. Anyone with a rudimentary understanding of economic activity and trade already knows it. And, as usual, you are going off on tangents and trying to create confusion and generally making your self look foolish.
If you can't look at the crude oil example and understand how more domestic crude production can reduce our budget deficit and also reduce our trade deficit, then you are truly hopeless.
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