US and EU economies hang on Chinese imports ----- Dampening inflation, China is a silent partner of the Fed's Open Market Committee and the European Central Bank

China’s exports to the United States and the European Union now amount to nearly 30% of manufacturing GDP, after an unprecedented surge in shipments this year. US imports from China are 30% higher than before the Covid-19 pandemic, and Europe’s imports are 50% higher. These margins of increase have an important macroeconomic impact.

Taiwan and South Korea, in turn, are important suppliers of industrial goods – especially electronics – to the West, and their imports from China include components that are re-exported to the US and Europe. This reflects closer economic integration among the major Asian industrial economies.

In effect, China’s export sector has become an economy within the economies of the US and Europe, meeting a margin of demand for manufactured goods equal to nearly 30% of the industrial nations’ manufacturing GDP.

China’s ability to increase exports gives the industrial nations more room for monetary and fiscal stimulus. In the case of Europe, a 50% increase in imports from China during the past two years amounts to about 2% of overall GDP, and about 14% of manufacturing GDP. China’s flexibility in increasing supply allows Europe to increase demand.

In the US, higher imports from China amount to a $250 billion increase in supply at a time when demand for consumer electronics and other consumer goods jumped along with fiscal and monetary stimulus.

The cost of Chinese goods rose after the pandemic, following years of decline. But the net effect of the surge in Chinese imports is to dampen inflation. The US Consumer Price Index for durable goods rose by 14% between January 2020 and September 2021, while the cost of Chinese imports rose by only 4%. By providing nearly 30% of US goods consumption, China has allowed the US to conduct an unprecedented level of monetary and fiscal stimulus

and more:

“...That makes China a silent partner of the Federal Open Market Committee and the European Central Bank. Global supply chains have held up better than they otherwise would have because China’s industrial machine contributed more to supply. The electric power disruptions during the third quarter do not seem to have slowed China’s export growth, and the worst of the problem appears to be over, judging from the sharp fall in local coal prices....”

Instead of viewing trade exchange with China from the point of view Chinese exports to America, we should perhaps consider it from the point of view of American exports to China. In other words, while it is all well and good to say that Chinese imports dampen inflationI albeit at the cost of our manufacturing base and high unemployment, the point that is often missed is that the Chinese market for our exports seduces our industrialists and our politicians and enfeebles both our foreign national security policy and our domestic economic policy.

The implications of this are frightening. For example, if the Chinese were to invade Taiwan America is left with the choice of engaging China in a kinetic war or acquiescing. Neither choice is palatable. Much better is to have a deterrent. A deterrence that might actually work is a threat to terminate Chinese exports into America and crash the Chinese economy threatening the existence of the CDC but our industrialists and our politicians, who are virtually to a man compromised by their obsession to break into the Chinese market, will not tolerate sanctions against the Chinese.

The Chinese know their Sun Tsu, they know not to wage kinetic war if there is another way to achieve their national goals. One way is simply to continue to suborn American institutions until there is no constituency left that will be willing to credibly threaten Chinese imports. Therefore, no deterrence.

Extrapolate this further: as America becomes more and more isolated, as Taiwan goes and as the Philippines follow, as our European allies chart an independent course because they too are seduced by Chinese markets, as Japan submits to the realities of its exposed position, America will weaken relative to a strengthened China. At the end, the left in America, coupled with crony capitalists, will simply lower the flag, open the gates, and invite the barbarians through.

Until we break our obsession with the Chinese market we will never have an effective foreign policy and we will never be able to defend ourselves against Chinese imports which hollow out the American industrial base that destroys our middle-class and enfeebles us.

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