Right off the bat I’d like to thank Menzie Chinn of Econbrowser for the following graph of the ratio of the China-U. S. trade balance to China’s GDP. I asked for it in the comments of a post of his on the U. S.-China trade balance and he most graciously produced it for me. Thank you.
As you can see the trend is sharply up: as the Chinese GDP grows, they progressively sell relatively more to us than they buy from us. I don’t think it takes a genius to recognize that this is probably not a sustainable growth strategy for China (nor the U. S.). China needs to buy more from us and cultivate their own internal consumption and there’s plenty that the Chinese would like to buy e.g. food.
But this is where I think that the political liberalization wheel hits the economic liberalization road. I suspect that the Chinese leaders see a more natural trade balance between the United States and China as a potential threat to their own domestic power and will, no doubt, resist it.
China’s leadership is probably being driven largely by the need to create jobs for the millions of people leaving the farms/villages and coming to the city.
I wonder, though, if they wouldn’t do better to swing some capital in the direction of the agricultural sector and increase food supplies by growing more of it on their own, rather than importing it from us and others. This wouldn’t solve their entire moving-to-the-cities problem, but might help it.
It’s a complicated question, david. To a large extent that’s what did in the 1970’s. Now they’ve already picked the low-hanging fruit in agricultural reform, which was a sort of partial privatization. The next step was importing more grain which impelled people from relatively inefficient agricultural sector jobs to China’s growing manufacturing sector.
My point is that the agricultural reform came first not the moving to the cities.
This is a great instance of comparative advantage. The key problem is that the Chinese are actively restricting all of the areas in which the U. S. has a comparative advantage.
My understanding is that my local area (Milwaukee) has a positive trade balance with China. Their orders for coal-mining equipment has been a large part of the rebirth of the near-dead P&H factory.
China has gotten good PR from some sector, but look at it from a wider perspective. They have no civil rights. They have no viable commercial law. They are polluting without restraint. They have no system to stem rampant corruption. How are they supposed to create an “economic miracle” under these conditions. This is a house of cards: stunning, visually attractive, but wait for the breeze.
US Trade deficit for August was largest in histroy… lead by China, now the largest owner of US Treasuries, about 3/4 trillion dollars…US gets goods …they get bonds and a chunk of our sovereignty.
China can send us into recession by just threatening to stop buying our t-bills…if the don’t like our policies on No. Korea, Taiwan, or Iran.
Unfortunately many economists and politican that don’t think our trade deficit matters, probably don’t think our sovereignty does either!