China Trade Surplus With West Still Rising ...

Just continuing on from yesterday. Another article that was published in the NYT.

China's global exports soared in the first quarter of this year, allowing the country to rack up huge trade surpluses with the United States and western Europe, according to detailed trade data released late last week by Chinese customs officials..

Chinese exports in the quarter rose to $155 billion, up 35 percent from about $116 billion a year ago.

According to the figures, which were analyzed by Global Trade Information Services in Columbia, S.C., China continues to run a big trade deficit with Asian trading partners like Japan, Taiwan and South Korea, as well as several oil exporting countries. But its surpluses with the United States and Europe are rapidly widening.

China's trade surplus with the United States jumped to $21 billion in the first three months of the year, up from about $12.4 billion a year ago - a 73 percent increase.

The Chinese statistics are different from those released by the United States, which generally show much larger trade gaps. Last year, the United States government said that China had a $162 billion trade surplus with the United States, the largest ever recorded.

In the first three months of the year, China's trade surplus with the seven largest traders in western Europe - Belgium, France, Germany, Italy, the Netherlands, Spain and Britain - rose to about $12.3 billion, up from about $5 billion in the same period a year ago.

Even Germany, which has long run trade surpluses with China because it sells heavy manufacturing equipment to Chinese factories, is now in the red: its $2 billion trade surplus in the first three months of last year evaporated, turning into a $159 million trade deficit in the first months of this year.


I guess there is no end to articles highlighting the Chinese growth and its role in the current global economic scenario. We have a very simple world economic model. China produces, America consumes .. and the rest of the world invests money in the US so that they can consume even more. I read somewhere that if Wallmart was a county it would be China'a seventh largest trading partner!!

Another big issue is the US trade deficit. A trade or current account deficit is accompanied by capital and financial account surplus. So under the present scenario, the rest of the world are lending money to America so that it can consume much more than they can afford. The people who are lending the money believe that the dollar will retain its value and America will always be able to pay back the dollar loans. The majority of these dollars loans are by the cental banks of east asia which have invested most of their dollars into US treasury bonds. The countries with the highest foreign exchange deposits (mostly in dollars) are these very countries i.e China, S.Korea, Japan, Taiwan, Hong Kong. Now the question is that how long will these countries continue to keep on investing their money in the US economy. Bu the problem is that they are stuck in a no win situation. If they indicate that they will no longer buy US bonds, the US dollar will start losing value which will erode the value of their massive savings ..

Another thing I read was that the present value of all US debt obligations is 51 trillion dollars.. and this is way more than the total value of the US economy. In some sense US is bankrupt ... but then people have so much faith in the dollar than they dont care about these facts and believe that the US can pull through .. as it has been doing..

Quoted right from NYT-

We boomers are also preying on children in a more insidious way: We're running up their debts, both by creating new entitlement programs and by running budget deficits today. Laurence Kotlikoff, an economist and fiscal expert who with Scott Burns wrote the excellent and scary book "The Coming Generational Storm," calls this "fiscal child abuse."

The book says that the Treasury Department commissioned a study by two economists of the United States' long-term liabilities, for inclusion in the 2004 federal budget. The study found that the government faces a present value "fiscal gap" - the excess of expected payments over expected revenues - of $51 trillion. That's 11 times our official national debt and also greater than our total net worth, meaning that in some sense we're bankrupt.

I have a few slides here from my multinational business finance class by prof Min Shi.