Robert Samuelson: China's Trade Time Bomb

I'm weary of the free-trade argument today. If you're so inclined, have at it - I'm going to sit this one out:

China's Trade Time Bomb by Robert J. Samuelson, Commentary, Washington Post: It sometimes seems as if almost everything we buy comes from China: DVD players, computers, shoes, toys, socks. This is, of course, a myth. In 2006, imports from China totaled $288 billion, about 16 percent of all U.S. imports and equal to only 2 percent of America's $13.2 trillion economic output (gross domestic product). Does that mean we don't have a trade problem with China? Not exactly.

China is already the world's third-largest trading nation and seems destined to become the largest. On its present course, it threatens to wreck the entire post-World War II trading system. Constructed largely by the United States, that system has flourished because its benefits are widely shared. Since 1950, global trade has expanded by a factor of 25. By contrast, China's trade is mercantilist: It's designed to benefit China even if it harms its trading partners.

There's a huge gap in philosophy. By accident or design, China has embraced export-led economic growth. The centerpiece is a wildly undervalued exchange rate. ... The resulting competitive advantage props up exports, production and jobs. ...

Despite popular impressions, China's trade offensive hasn't yet seriously harmed most other economies. For example, ... that hasn't stymied job creation; the U.S. unemployment rate is 4.5 percent. And world economic growth has accelerated.

But what's been true in the past may not be true in the future. The huge U.S. trade deficits, fed by Americans' ravenous appetite for consumer goods and heavy borrowing against rising home values, stimulated economies elsewhere, including China's. Now that stimulus is fading as U.S. home prices weaken and consumers grow more cautious. For China to expand production, demand must come from its own consumers or other nations... There's the rub.

Update: PGL has lots more to say about this. As he says in an email, "OK, you outsourced that one to this Angrybear."

Even Chinese officials favor higher local demand. But either they can't or won't stimulate it. Personal consumption spending is a meager 38 percent of GDP; that's half the U.S. rate of 70 percent. The Chinese save at astonishingly high levels, partly because they're scared of emergencies. The social safety net is skimpy. Health insurance is modest... There's no universal Social Security, and only 17 percent of workers have pensions. A mere 14 percent are covered by unemployment insurance. ...

A low currency ... serves two roles: as an inducement to attract foreign investment, and as a tool to balance the economy and to check popular discontent. But for the rest of the world, the consequences are potentially threatening. As China moves up the technology chain, it may become the low-cost export platform for more and more industries. This could divert production from the rest of Asia, Europe, Latin America and the United States.

It is not "protectionist" (I am a long-standing free-trader) to complain about policies that are predatory; China's are just that. The logic of free trade is that comparative advantage ultimately benefits everyone. ... But the logic does not allow for one country's trade systematically to depress its trading partners' production and employment. Down that path lie resentment and political backlash. ...

Given the immense stakes -- literally the future of the global trading system -- the Bush administration has been too timid in pushing China to change. The Treasury Department won't even declare China guilty of currency manipulation. No doubt doing so would irritate the Chinese. But avoidance is no solution; the longer these problems fester, the more intractable and destructive they will become.

How hard should we push? Here's Krugman:

The Chinese Connection, by Paul Krugman, NY Times, May, 2005: Stories about ... condemning China's currency policy probably had most readers going, "Huh?" Frankly, this is an issue that confuses professional economists, too. But let me try to explain what's going on. ...

Here's how the U.S.-China economic relationship currently works: Money is pouring into China, both because of its rapidly rising trade surplus and because of investments by Western and Japanese companies. Normally, this inflow of funds would be self-correcting: both China's trade surplus and the foreign investment pouring in would push up the value of the yuan, China's currency, making China's exports less competitive and shrinking its trade surplus.

But the Chinese government, unwilling to let that happen, has kept the yuan down by shipping the incoming funds right back out again, buying huge quantities of dollar assets... This is economically perverse: China, a poor country where capital is still scarce by Western standards, is lending vast sums at low interest rates to the United States.

Yet the U.S. has become dependent on this perverse behavior. Dollar purchases by China and other foreign governments have temporarily insulated the U.S. economy from the effects of huge budget deficits. This money flowing in from abroad has kept U.S. interest rates low despite the enormous government borrowing required to cover the budget deficit. ...

Here's what I think will happen if and when China changes its currency policy, and those cheap loans are no longer available. U.S. interest rates will rise... And we'll suddenly wonder why anyone thought financing the budget deficit was easy. In other words, we've developed an addiction to Chinese dollar purchases, and will suffer painful withdrawal symptoms when they come to an end.

I'm not saying we should try to maintain the status quo. Addictions must be broken, and the sooner the better. After all, one of these days China will stop buying dollars of its own accord. And the housing bubble will eventually burst whatever we do. Besides, in the long run, ending our dependence on foreign dollar purchases will give us a healthier economy. In particular, a rise in the yuan and other Asian currencies will eventually make U.S. manufacturing, which has lost three million jobs since 2000, more competitive.

But the negative effects of a change in Chinese currency policy will probably be immediate, while the positive effects may take years to materialize. ...

And here's Joseeph Stiglitz, who is also in the "be careful what you wish for" category, at least in the short-run:

US has little to teach China about steady economy, By Joseph Stiglitz, FT: ...[I]t is time for a calmer assessment about what [revaluation] does and does not mean for China, for the US and for the global economy. …

[W]hether this, or a succession of revaluations, eliminates China’s trade surplus will have little effect on the more important problem of global trade imbalances, and particularly on the US trade deficit. Much of China’s recent gains … came at the expense of other developing countries. America will once again be buying from them, and so total imports will be little changed. … Unless domestic investment goes down or domestic savings go up, the trade deficit will persist, unabated.

The trade deficit could diminish but if it does, it will not be a pretty picture. Domestic investment, for instance, could go down if we succeed in getting our wish and China’s trade surplus disappears; with China no longer using the money from its trade surplus to fund our huge fiscal deficit, medium- and long-term interest rates would rise [causing an] economic downturn...

Comments

[Outside the Box]

The bigger the deficit, the harder higher interest rates will be to service. We are digging a deep hole, making financing the baby boom's retirement that much harder.

[dissent]

I was shocked that this came from Robert Samuelson. I regard him as the essence of conventional wisdom in things economic. I wonder if Paulson has been whispering in his ear about Chinese resistance to currency realignment.

Stripped to its essence, Samuelson is saying China must be confronted. That may mean a trade war.

[maria]

For the US to demand that China revalue the yuan is rather like a drug addict demanding that his supplier raise his prices to curb his addiction. You think the US has the will power to do that? LOL.

[Martin]

Mark,

Samuelson has at last read some history.

He writes,

"By contrast, China's trade is mercantilist: It's designed to benefit China even if it harms its trading partners. "

The life and career of Bismarck, who knew a great more than Bush about nation building, seems to have studied more closely in Peking than Washington. Or London. Or Brussels.

[Tom]

Since when did China become America's master?

China's grand strategy is to corner the market on low-margin manufacturing that would go elsewhere is they revalue the yuan. Sure China's "rise" is impressive but they have 900 million people to help participate in the global marketplace.

The trade deficit should have been addressed years ago (in fact the US has a trade deficit with many countries) ... Warren Buffet wrote a good article about it in back in 2003 with a viable solution. If the US policymakers were paying attention, they should have corrected this years ago. Instead, we have become a debtor nation complaining about the bill like an irresponsible credit card user. Consumers have a lot to blame also .... they've been running up debt too.

[Sean Matthews]

What do I learn from this? Not much - more or less that Samuelson was not paying attention in Economics 101, while Krugman and Steigliz have taught Economics 101 and are very aware that the world is a lot more complex than a simple equilibrium model.

[save_the_rustbelt]

I'm just wondering what happens when the US has a recession and a couple of million more manufacturing jobs are lost in 12 - 18 months. Hmmmm?

Backlash?

[Elvis]

China's grand strategy is to corner the market on low-margin manufacturing

China's "grand strategy" like everyone else's who is in power is to stay in power. They, like everyone else, are just bungling along with whatever they can imagine.

They have a huge mass and so their movements scare everyone. Rustbelt is right. Backlash, Backwash and Blowback. What will they do with their $$$? Buy foreclosed houses? So it goes. Busy busy busy.
Missing Vonnegut already.

[yartrebo]

"It sometimes seems as if almost everything we buy comes from China: DVD players, computers, shoes, toys, socks. This is, of course, a myth. In 2006, imports from China totaled $288 billion, about 16 percent of all U.S. imports and equal to only 2 percent of America's $13.2 trillion economic output (gross domestic product)."

Using dollars and GDP to value trade is very deceptive if one is trying to find out our dependence. What produces more value: building a shoe, or advertising the shoe on TV? In GDP terms, the advertising is worth about 60 times more ($60 markup on brand name shoe vs. generic; $1 export price for the shoe from China). In intrinsic value terms, the advertising is a waste of effort at best, and probably destructive to our collective well-being, while a pair of shoes prevents worm infections, blisters, cuts, and all sorts of ills that we would get going everywhere barefoot.

For another comparison, what is more valuable: a private jet, or 10,000 bicycles? In GDP terms, the private jet is worth far more, but in intrinsic value terms, the 10,000 bicycles are worth more (assuming they are used for transportation and not just as a toy 3x a year), as they will move far more people and without any of the environmental externalities of jets.

On top of this, the US produces a lot of wasteful domestic services, such as tax dodging, hedge funds, credit cards, corruption, armies and prisons, and plenty more. These are all counted towards GDP, but they reduce our well being and we would be better off without them, even if it meant paying all the laid off employees their full wage just to do nothing.

In short, most of our imports from China are very valuable in intrinsic terms compared to our exports and domestic production, and this grossly distorts the trade figures. If China were to cut off trade with us tomorrow, there would be riots of ill-clothed and TV deprived people as our shelves become empty, but China could easily do without our exports.

[Al Buono]

Since when?

"Constructed largely by the United States, that system has flourished because its benefits are widely shared."

Widely shared amongst the few, the elite, the wealthy first world nations; somehow or other the Third World former/neo-colonies don't seem to be enjoying this advantage; and the second world are too busy repaying the World Bank and IMF to notice the generosity.

[Objectivist]

This article is absolute bull. Lets check some history, which all the people backlashing against Globalization really seem to hate. When the Japanese Yen doubled in 1985 after the Plaza Accords, what happened? Care to take a guess? Seriously. Oh yeah, the US trade deficit with Japan kept widening, despite a doubling of the Yen's value! And given that the yen is still around where it was after the Plaza Accord, we can assume that that was its real value. So, that didn't do the US much good now, did it?

As for China, the same thing, except more so. Even if China's currency were to double or quadrouple against the dollar, it would do nothing to reduce the US trade deficit. It would simply expand the US trade deficit, and indeed make China wealtheir than the US not only on paper (via PPP), but also in reality. The reason for this is several fold. One, China and the US have the same technology basically, as China, despite a smaller GDP, invests so much more of it. The end result of this is that trade between China and the US comes down to the disparity in wages, nothing else, and China has the US beat there. If China's currency appreciates, what I think would happen is that inflation there would drop quite a bit, and since inflation is already low in the first place, there might possibly be deflation. Chinese wages would either stagnate or fall (compared to 10% increases as of late). The result would be that although there would be some upward movement in Chinese wages, it would soon cease, and the gap between US and Chinese wages would grow again. Also, China, with a stronger currency, could then buy more US stuff. Protectionists harp about trade deficits and jobs, but did they ever think about China buying the US defense industry or oil industry? Bet not.

[maria]

China's "grand strategy" is simply to repeat what Japan accomplished earlier. Expand the economy with exports until you are developed enough to let your currency float. Isn't that what Japan did until 1971? With a great development model on its doorstep why should anyone be surprised by its strategy? And didn't the US screech and scream about Japan before it floated the yen?

[maria]

This from TIME, March of 1977: Deja vu "all over again"

The Administration is mildly worried about its accumulated trade deficit with Japan ($5.4 billion last year) and shares the concern of U.S. businessmen who feel they are unfairly frozen out of Japanese markets. Washington would like Fukuda's government to encourage "voluntary" reductions of exports to the U.S.—and to act on complaints about the dumping of underpriced goods in the U.S., notably autos, color televisions and other electronic products.

Undue Concentration. For his part, Fukuda seeks Carter's assurance that the U.S. will maintain a strong military presence in the western Pacific. "Almost all Asian leaders," Fukuda told TIME Tokyo Bureau Chief William Stewart, "will be disturbed if the U.S. disrupts the basic tenor of its Asian policy. They have asked me to convey their concern." Fukuda is especially chary of "any disruption of the delicate balance offerees on the Korean peninsula. I plan to advise President Carter very strongly about this."

Equally important, he wants a commitment from the U.S. that it will sell energy-poor Japan, which imports virtually all its oil, the know-how for building a much needed nuclear reprocessing plant 80 miles north of Tokyo. Despite Carter's concern about nuclear proliferation, Japanese officials believe it is grossly unfair for the Administration to lump Japan, which signed the nonproliferation treaty, with Brazil, which did not.

Fukuda is aware of the need to make concessions. As he told Stewart, color-television sets, steel, automobiles and ships "account for a major portion of our export trade, so much so that we are advising [the manufacturers] to avoid undue concentration [on specific markets]." Fukuda also warned against restrictive measures like last week's recommendation by the U.S. International Trade Commission that tariffs on imported television sets be increased from 5% to 25% over the next two years (see ECONOMY & BUSINESS).

"Inevitably there is a tendency toward protectionism," he told TIME. "If this happens, the world will sink into a serious depression." As for the U.S. deficit, the Premier argued that "we must look at the trade balance for a longer period of time—say, over several years." Fukuda rejects widespread plaints that the yen is deliberately undervalued to encourage exports. "Since the yen was floated, there has been no intervention [to keep it from appreciating]. We leave the value of the yen strictly to market forces."

[piglet]

"Constructed largely by the United States, that system has flourished because its benefits are widely shared. Since 1950, global trade has expanded by a factor of 25. By contrast, China's trade is mercantilist: It's designed to benefit China even if it harms its trading partners."

That's so outrageously and obviously dishonest it even surprises me.

[maria]

I might add that if the US is unhappy with its economic relationship to China, it is up to the US to make whatever adjustment it deems fit. The Chinese seem perfectly happy with the status quo. But the US always wants the OTHER guy to make the adjustment, not the US. The US needs to learn it can't always force others to bend to its will, unless it wants, of course, to invade them to change their regimes. Fat chance of that with China.

[Rick]

What will they do with their $$$? Buy foreclosed houses?

What makes you think China would want to invest heavily in the US? In order for them to be the world's producer of cheap stuff, they're already investing in other developing and emerging markets and building a complementary economic relationship with them. Every year that goes by China is decreasing exports to the US.

Will the US or China be at the center of a liberalize France and EU?

I'm just wondering what happens when the US has a recession and a couple of million more manufacturing jobs are lost in 12 - 18 months. Hmmmm?

Backlash?

America will go into a protectionist mode as the rest of the globalized world looks behind their shoulders and waves.

In 20 years, Europe will start making fun of "Old America" as it benefits from the US-China model of prosperity but with the hindsight learning from America's mistakes .... which is mainly too much debt.

[robertdfeinman]

I'm confused, if China revalues its currency upwards then what we import becomes more expensive. Do those promoting a revaluation think that American businesses will then take over since they will be more competitive?

How expensive would a DVD player have to become before they were manufactured in the US? Who would invest in such a factory (and all the suppliers to it) when the size and stability of the market couldn't be predicted?

I can see only two things happening, the prices go up and our cost of living increases and/or the deficit increases.

Look at the oil market. Since we can't produce all the oil we need we just bite the bullet and pay more. So far demand hasn't decreased by much. I guess that DVD player demand is more elastic than gasoline, but our present behavior doesn't seem to indicate any flexibility.

Where are the wind farm initiatives? Yesterday the house voted to raise CAFE standards by a meaningless amount over a decade. This isn't a realistic response to a current situation.

It looks like we will have to have a financial Katrina before people wake up.

[maria]

Another seemingly overlooked element here: The US is, from the Chinese point of view, perpetuating the division of China. The US supports Taiwanese separatism, with threats of military action if it is attacked, and thus is, in effect, supporting a left over WWII colonial regime that came into being under US auspices. China has been very sensible and realistic about all this, but it is always in the background. So why on earth does the US think China owes us any favors, like changing its economic policies, to please a nation that is defending and perpetuating its renegade province? Americans seem so unable to see the larger picture.

says...

I think the US-China trade is overhyped. China is an old country with 1.3 billion people who have used up it's natural resources and America is a young nation who have used up a small portion of it's natural resources. American investment institutions has been bankrolling china's industrial development since chairman deng took power. China simply did not have the capital/money to build it's industries when it began economic reforms. It was American investments who funded the factories in China, there aren't many chinese national brands in America. China tried to build chevron but failed, it brought lenovo which turned out to be a joke since they paid close to $2 billion for an old tech platform division of IBM and American business customers have left and went to HP and Dell. China only controls the labor/wage of manufactoring in the supply china(from R&D to retail to customer service), and they make very simple products like the stuffs you buy at discount stores because the manufactoring of these jobs required very low skilled.

In the late 70's china had a mostly farming population, so most of it's people were and are non educated, so they don't have the skilled necessary to develop/make hi-tech companies. This is changing slowly. So American companies simply use china to make their products and they pay chinese workers(at about $1USD per day) and they also fund the factories in china, and American companies make big profits. The trade surplus is really paper. The chinese do make some money from industrialization and since they have a developing economy that's being funded by foriegn investors like American companies, they invest their money from trade with the US by investing in very low interest US gov't bonds. American companies make big profits from their trade with china since they fund the economic growth of china by funding factories who export to the US and the workers make $1usd per day compare to american factory workers who make much more than that per hour.
Since the end of the USSR, the media has hyped china, and now india, to be a superpower. The chinese, and indians, are into face saving so they buy into this hype and think they are a superpower when they are very old nations with spent resources. india is simply doing simple back office work. The indian workers who get hired by us companies ranked in the top 5% of 1 billion people, and yet, the quality of outsourced work is not nearly as effective compare to US workers. the top 5% of indians out of 1 billion don't compare to the same Americans who scored average in America. A tech or customer service rep in America usually come out of state college with c averages. I am an asian with a speech impairment and when I call tech support and I get an indian or filipino on the line who took an Americanized accent removal course at the company, they laugh at my english. Asians buy into hype created by American media and they get played easily, they have very low self esteem who simply don't have enough self confidence to attempt to industrialized by creating their own platform. So this global economy is mainly hype. 3rd world nations create products for Western and Japanese companiese and they get to use the new wealth to build some buildings, and the US media points to them as proof they will become the next superpowers, and they believe it and Americans get scared. Americans can be convinced to be frighten of their own shadows. The US media builds up other nations like the USSR and now Asia especially china.. Like at the Japan hype of the 80's and China hype of today and India hype tommorrow. It took a few months for American investors to tear down the east asian economies of the 90s. China is selling their environment and the health of it's people for $1usd per day. As the chinese currency goes up and/or the American dollar value keeps going down, Western and Japanese companies will move jobs out of china and into Vietnam and elsewhere with cheap labor. This global economy for the 3rd world is a global surivor show and current winner is the one who has the cheapest labor and can control their labor from developing humaine practices like formation of Unions with the gun. For America, this global economy is unlimited source of cheap labor. This is all this global trade and economy is about... in a long paragraph.

[Rick]

I'm confused, if China revalues its currency upwards then what we import becomes more expensive. Do those promoting a revaluation think that American businesses will then take over since they will be more competitive?

Chinese imports will become more expensive but those jobs won't go to the US .... the US will try to find a good and obediant emerging market like that of the old neo-liberal days. The future US trade policies will be directed at China only (and warning to India).

The question is with whether other emerging markets see a better future with the US or with China? Chances are that countries in Latin America, Russia and Africa (if they could stop killing each other) think that their best path towards development will be by building a knowledge-based economy instead of the (re)subscribing to the Washington Consensus.

[kharris]

"China's trade is mercantilist: It's designed to benefit China even if it harms its trading partners."

Others have pointed to this line, as well, but let's just be clear...

Merchantilism does not have a monopoly on "designed to benefit Country X even if it harms its trading partners." Smith's invisible hand argument was an argument for international trade as opposed to merchantilism, and Smith was quite clear that, from a domestic policy perspective, free trade was preferable because it benefits the home country without regard to its impact on trading partners. The criticism Samuelson aims at Chinese merchantilism is identical to the self-interested argument Smith offered for trade. This (not Paul) Samuelson guy has no idea what he is saying half the time.

[Tom]

China is an old country with 1.3 billion people who have used up it's natural resources and America is a young nation who have used up a small portion of it's natural resources.

China has really yet to be fully explored. link

I agree that the 'China Threat' is a long way from becoming a reality ... China has produced nothing of significance technologically and culturally in the global marketplace and won't for at least another decade or so (which is why China has no choice but to remain the low-cost manufacturers of the world.) China still buys a lot of US goods and has surpassed the US as Japan's #1 buyer.

The threat to America in the near future is from Europe and a collection of emerging markets that will develop economies similar to the US.

[maria]

China for one has large reserves of coal. I hardly think it has "used up all its resources." It may have more oil than the US. Of course its manufacturing sector that is huge uses lots of resources. But the idea that the US is filled to the brim with natural resources seems a bit off to me. Canada, Brazil, etc., perhaps but not the USA.

[maria]

According to the CIA factbook China has 16.1 billion barrels of oil reserves and 2.35 trillion cubic meters of natural gas reserves. The US has 22.35 billion of oil reserves and 5.451 trillion of natural gas. But China has Siberia next door and the rest of central Asia with immense reserves of oil and gas and many other natural resources, so it hardly will go without. Japan has done very well without much in the way of natural resources, other than its intelligent population, so I don't think lack of resources is any barrier to China's development. It and Russia (Siberia) have a kind of symbiotic relationship.

[maria]

"What makes you think China would want to invest heavily in the US?"

Well it would probably like to use some of its $ hoard to invest in companies and real estate instead of US IOUs, but the US blocks its investments, out of fear. It tried to buy an oil company and the US prevented it. I think other attempts to purchase real US assets have been attempted, but blocked. The US much prefers to sell China promissory notes instead of real assets. If there is a big US slump however we might be more welcoming of Chinese investment in real assets.

[Tom]

China's "grand strategy" like everyone else's who is in power is to stay in power. They, like everyone else, are just bungling along with whatever they can imagine.

That's a goal but not a strategy.

China is not just 'bungling along.' They do have a long-term stategy for development. A couple of years ago when China's leaders said that they will match the US economy in 2050, most people scratch their head and say to themselves, "why so long?"

The Chinese are realists when it comes to their development and are planning for the long haul (even though they are 'bungling along' here and there such as environmental abuse, worker's rights etc.). They also realize that by matching the US economy isn't anywhere near their full potential (a country of 1.6 billion equaling a country of 400 million in 2050 is that threatening economically.)

[Tom]

Well it would probably like to use some of its $ hoard to invest in companies and real estate instead of US IOUs, but the US blocks its investments, out of fear. It tried to buy an oil company and the US prevented it. I think other attempts to purchase real US assets have been attempted, but blocked.

China will invest in the US for one major reason: to gain technology.

But most of China's investments will be in other emerging markets. The US and other advance nations have a hard time selling their consumer products to the masses of these markets. China is taking advantage of that by encouraging investments to create a consumer base for Chinese products. China's betting that other emerging markets (other than India) have a better chance of becoming fully developed before China and they're hoping to plant the seeds for a long-term presence in these markets.

China for one has large reserves of coal. I hardly think it has "used up all its resources."

Most of China's center and Western region are still unexplored. They're making new discoveries every year.

http://www.atc.org.au/index.php?option=com_content&task=view&id=252&Itemid=89

[Wayne Jett]

maria,

Your comparison of U. S. trade/monetary policy towards China to a drug addict insisting that his supplier double the price charged for his drugs is not far off-base. I would just make a couple of adjustments: (1) it is not the drug addict insisting on the change of price - it is a government central planner and/or intellectual policymaker; and (2) the buyer is not an "addict" but a normal person acting in his/her own self-interest.

The result is that the central planner increases the price and the buyer continues to buy (including borrowing, if necessary) so long as it serves self-interest.

In that circumstance, is it surprising that the total expenditures for imports continues to rise with the prices, thus worsening the current account deficit? Remember, China's prices have not adjusted much yet, because China pegs its currency to the dollar (which is the opposite of "manipulating" its currency for trade advantage).

[Jerry]

I disagree Wayne.

Many of the cheap goods from China are hardly investments that truly serve the American consumer's self-interest. I would argue that consumerism in general is a lot like drug addiction. The economy is becoming too reliant on consumer's who are not fiscally responsible and make purchases on impulses similar to a drug addict's fix. With the amount of non-morgage debts continuing to rise, American consumers have nothing to show for these "investments."

I imagine that there are many people that look at their debts and wonder, "How did I ever get into this mess and what have I gained?"

[maria]

Tom: yes, China might well like to acquire more US technology, but it also wants to diversify its holdings of US treasuries. Buying US hard assets is the best way to do that without upsetting international financial markets.

[Lord]

China can continue this as long as they want; all they have to do keep lowering prices. We are a long way off from any change.

[maria]

If the US government believes that imprisoning a person like this will keep China from developing all the military technology it needs, it is seriously deluded. A futile effort to prevent China from becoming the super power it will soon be. Quite childish.

http://news.yahoo.com/s/ap/20070510/
ap_on_re_us/military_secrets_china

[maria]

Brad Setser today says:

Dollar weakness is leading the oil-importing portion of the dollar block to adjust. But it is doing more to push up China’s surplus than to push down the US deficit.

That means that the US is growing more dependent on Chinese financing. Like Stephen Green, I am looking for China’s reserves to increase by $500b this year, if not a bit more, and its purchases of US debt to top $350b. The formation of the state investment company might change the headline total a bit and reduce debt purchases a bit, but it won’t change the underlying dynamic.

I personally think the surge in Chinese financing of the US – and specifically the surge in indirect financing of US households (through Agency purchases, among other things) – helps to explain why the fall in the US fiscal deficit seems to have been offset by a rise in the overall deficit of US households, keeping the savings and investment balance from falling by as much as might be desired.
********************

Instead of seeing Chinese policy as simply stubborn or perverse, I wonder if he and others have ever considered the idea that China might want to get the US ever more dependent economically on it. More leverage in the future if push comes to shove, over Taiwan, for instance. A US helpless to do anything for Taiwan for fear of collapsing our economy.

[maria]

Anon says: China is an old country with 1.3 billion people who have used up it's natural resources.

What poppycock.

China has 59 billion tons of iron ore reserves
85.1 million tons of copper reserves
and 2.658 billion tons of bauxite reserves
and much else to boot

"used up" my foot!!!