CAFTA: The Expanding Trade Deficit with China by Another Name?

But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.
~Karl Marx, "On the Question of Free Trade" - January 9, 1848

ping

btt

Free trade is good for everyone, and Karl Marx can kiss my a***... because free trade is reality. We can't stick our head in the sand and wish away the cheap labor coming on the market in China and India. At best, we can only delay the inevitable. High tariff walls are just another form of taxing the citizens and they encourage blackmarkets.

What we CAN DO is stop having our taxes subsidize plants in foreign countries (via confiscation insurance, loan guarantees), reduce taxes on US corporations, reduce onerous labor and environmental restrictions (not all, just the onerous ones), and most importantly stop the huge illegal immigration into this country which greatly depresses wages and puts willing US workers into federal and state welfare.

In China's case, they are not holding up their end of the bargain, as I understand it, because they have been keeping out our agricultural goods.

I'm for tit-for-tat free trade, but even unilateral free trade is good because it helps US consumers. Tariffs are just a tax on the citizens of that country.

We have a lot of work ahead of us as a country, but running from free trade should not be a part of our ethic. We should be smart enough to figure out how to compete against these forces.

We need to be flexible on the economic field, just like our Marines are agile on the military field in Iraq.

Hoppy

Free trade is good for everyone, and Karl Marx can kiss my a***... because free trade is reality.

Karl Marx claimed that free trade and globalization are necessary for the world revolution.

"I'm for tit-for-tat free trade, but even unilateral free trade is good because it helps US consumers."

To be consumers, people must be workers. If their jobs get offshored and they are reduced to selling what they used to make in Wal-Mart for a drastically lower salary, those low prices are of little comfort.

Just on CBS news - 1500 jobs, making charcoal grills, are moving from Georgia to China, to save 25%.

http://www.americaneconomicalert.org/view_art.asp?Prod_ID=1187

China -- Not America -- Is 'Center Stage' for the Fortune 500
William R. Hawkins
Wednesday, October 06, 2004

The October 4 issue of Fortune magazine is devoted to China as an economic miracle and expanding profit center for the transnational corporations, who play the hero roles in Fortune’s globalist mythology. Ian Davis, the worldwide managing director of the consulting firm McKinsey & Company, is quoted as saying that for Fortune 500 executives, China is “absolutely center stage right now.” It is good for Americans worried about job security and the future of the U.S. economy to know that the great captains of industry are focused on expanding opportunities elsewhere.

In a 2003 survey by the American Chamber of Commerce in China, nearly half said profit margins in China were higher than their worldwide average. Fortune states that one-third of GM’s global auto profits come from China, even though it has only 12 percent of the Chinese market. This is because GM uses a very cheap, labor-intensive workforce to build luxury cars for Chinese officials and executives. In its Shanghai plant, 75% of the welding is done by hand compared to only 5% in GM’s highly automated American factories. What rolls off the assembly line in China are Buick Regals; and what GM plans next are Cadillacs.

China is experiencing the greatest industrial revolution in world history in terms of scale and speed. And there is nothing inherently wrong with American firms wanting to get their share of the money being made from the new industries being built. The question is what are the larger and longer term impacts on the world from these vast capabilities?

The Fortune issue does not get off to a promising start. Fortune’s Asia editor Clay Chandler, who used to write for The Wall Street Journal and The Washington Post, opens his introductory article as follows: “Huawei's troops are hatching plans to eat the lunch of global competitors, among them Cisco, Lucent Technologies, Siemens, and Alcatel. Founded in 1988 by a former People's Liberation Army sergeant, Huawei has come a long way from its start as a distributor of switchboards made in Hong Kong. Today the company employs 22,000 people, dominates China's market for high-speed switches and routers, and is muscling in overseas. Last year Huawei edged out half-a-dozen rivals, including Alcatel and Siemens, for rights to build a third-generation wireless-phone network in the United Arab Emirates, and it has signaled its U.S. ambitions by striking an alliance with 3Com, a Cisco rival. Huawei's sales this year are expected to top $5 billion, twice what they were in 2002, with $2 billion coming from outside China.”

These facts should sound alarm bells, but Chandler tries to put a favorable spin on events, as in the following paragraph: “So far, China's rise has proved more of a boon than a bane to its industrial partners....the charge that China is mercantilistic, focused solely on exports, just doesn't wash. Yes, China ran a $59 billion trade surplus with the U.S. last year. But for the most part, its U.S. trade gains came at the expense of rival exporters. Moreover, the U.S. is the only country with which China runs a significant trade surplus. For most other trading partners, China buys more than it sells.”

Let’s examine this statement: First, Chandler uses the Chinese-supplied figure for its trade surplus with the United States, which understates the magnitude of the imbalance. The much more credible number from Washington is that the U.S. trade deficit with China was $124.0 billion in 2003, a 20.3% increase over the $103.1billion deficit in 2002 – and more than double the number Chandler cites. U.S. exports to the booming Chinese market were only worth $28.4 billion compared to $152.4 billion in imports from a truly booming Chinese industrial sector, a better than 5-1 ratio of imports over exports.

Second, what is it that China imports? The chart that accompanies Chandler’s article only reports the top product each way between Beijing and its top ten trading partners. For the United States the top export is soybeans and the top import is computer components. By this measure, which is the more advanced mercantile power? As for the countries with which China runs a trade deficit, Taiwan, South Korea, Japan and Malaysia send China electronic components that are then assembled into finished products. They are raw material imports, little different to a modern industrial economy than the oil imported from Singapore and Russia. A substantial share of the finished products go to swell the trade surplus with the United States. And it’s the mark up between the cost of the components and the price of the finished products that provides the high profits.

Chandler himself notes this mercantilist pattern, writing, “It [China] has sucked in hundreds of billions of dollars from multinationals [$54 billion in foreign direct investment last year alone] eager to tap its vast pool of cheap labor and secure positions in its burgeoning market. It has become the world's manufacturing hub....China is pulling in imports from Asian neighbors – machinery from Japan, steel from South Korea, palm oil from Thailand – and its appetite for raw materials of all sorts, from peanuts to pig iron, has sparked an unprecedented boom in world commodity markets. It has become the world's largest consumer of copper, aluminum, and cement, and last year overtook Japan as the world's second-largest importer of oil.”

Chandler just can’t bring himself to analyze what it all actually means. Not all trade is the same, its composition is what tells the story. And for the advanced industrial economies of America and Europe, China is less a partner than a rival.

Chandler falls back on what has become the last ditch defense of trade policy failure by citing how much some consumers have benefitted from cheap Chinese goods. This may be true, but it is a basic principle of economics that large trade deficits weaken the economy as a whole. As the U.S. Commerce Department’s Bureau of Economic Analysis reported on September 28, the growth in real GDP in America slowed to 3.3% in the second quarter from 4.5% in the first quarter of 2004. According to the BEA, “The deceleration in real GDP growth in the second quarter reflected decelerations in PCE [personal consumption expenditures] and in private inventory investment and an acceleration in imports.” The BEA put it plainly: “Imports, which are a subtraction in the calculation of GDP, increased” and this slowed the economy, taking 1.1%. off GDP.

What is in play is more than just business. Economist David Hale is quoted as warning that China's ravenous appetite for commodities will force Beijing to strengthen ties to commodity exporters in the Middle East, Africa, and Latin America. It will build a navy to protect its “blue water” commerce, putting it on a geopolitical collision course with America. China is the world’s third largest shipbuilder in terms of gross tonnage, surpassed only by Japan and South Korea. It is building more warships each year than is the United States, albeit of inferior quality. But its capabilities are improving and it has shown the ambition to become the dominant power in Asia and perhaps beyond. Beijing would like nothing better than to monopolize the mineral resources of the South China Sea, in addition to its loudly proclaimed intention of taking control of Taiwan.

"China's economic takeoff," Hale says, "has occurred so quickly that the U.S. and other countries have not yet fully come to terms with it. All are extremely sensitive to the risk of job losses from China's export growth, but they have not devised a strategy for coping with the larger consequences."

Beijing is heavily involved with a number of unsavory, but resource-rich regimes at odds with the United States. Included in this rogue’s list are the mullahs in Iran, who have deep ties to global terrorism, are building a nuclear weapons capability, and are backing the insurgency in Iraq. Beijing opposed Washington over Iraq because it had deals with dictator Saddam Hussein to develop oil there. China has also sent security units to support the genocidal regime in Sudan, again because of investments in oil. And China has formed a “strategic partnership” with the left-wing government in Brazil and has backed the growing tyranny of Hugo Chavez in oil-rich Venezuela.

The international politics of the 20th century were dominated by the rise of Germany and Japan in the first half of the century, and of the Soviet Union in the second half. China’s rise is potentially even more unsettling to a world order at the center of which currently sits the United States.

Magazines and journalists that feed the American public recycled multinational and Chinese government propaganda need to be called on the carpet. American policymakers must examine closely for themselves the role that American companies are playing in expanding Beijing’s capabilities if American security and prosperity are to be protected.

The inability of U.S. officials to interpret the developments leading up to 9/11 and to take corrective actions represents a failure of American intelligence and policymaking. But that regrettable situation pales in comparison to the challenges that likely will face the United States as a result of today’s failure of U.S. strategic thinking about China.

William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.

Thanks for posting the link here! This is dynamite...as shown by the complete absence of the pseudo free-traders on the thread!